TIDMARO
RNS Number : 1253M
Arricano Real Estate PLC
26 April 2018
26 April 2018
Arricano Real Estate plc
("Arricano" or the "Company" or, together with its subsidiaries,
the "Group")
Final Results for the 12 months ended 31 December 2017
Arricano is one of the leading real estate developers and
operators of shopping centres in Ukraine. Today, Arricano owns and
operates five completed shopping centres comprising 147,500 sqm of
gross leasable area, a 49.9% shareholding in Assofit and land for a
further three sites under development.
Highlights
-- Recurring revenues increased by 19% to USD 27.5 million (2016: USD 23.1 million)
-- Operating profit increased to USD 65.5 million (2016: USD
43.8 million), both figures including revaluation gains
-- Total fair valuation of the Company's portfolio was USD 221.2
million as at 31 December 2017 (2016: USD 175.7 million)
-- Overall occupancy rates for 2017 increased to 98.7% against 98.3% in 2016
-- As at 31 December 2017, the Company's borrowings at project
level remain conservative with a banks' loan to investment property
value ratio of 19.5%, against 28.5% in 2016
-- Net asset value of USD 52.2 million (2016: USD 24.2 million)
Philip Scales, Interim Independent Chairman of Arricano,
commented:
"2017 was a successful year for Arricano and a continuation of
the progress made by the Company in 2016. Delivering revenue growth
of 19% in the current market reflects well on the management team
and the strategies they are pursuing to increase the appeal of the
shopping centres to both consumers and tenants."
This announcement is inside information for the purposes of
Article 7 of EU Regulation 596/2014.
For further information please contact:
CEO:
Arricano Real Estate plc Tel: +380 44 569 6708
Mykhailo Merkulov
Financial PR:
Novella Communications Limited Tel: +44 (0)20 3151 7008
Tim Robertson/Toby Andrews
Nominated Adviser and Broker:
Smith & Williamson Corporate Finance Limited Tel: +44 (0)20 7131 4000
Azhic Basirov
Chairman's Statement
In 2017, Arricano delivered a positive performance increasing
rental income by 19% to USD 27.5 million and growing recurring
profits by 10.5% to USD 17.6 million (excluding gains from property
revaluation). Along with improving economic stability in Ukraine,
Arricano has significantly outperformed the market with these
results, attracting and maintaining new tenants and creating modern
retail environments which consumers want to shop and socialise
in.
It is noteworthy that rental income from the portfolio now
exceeds income generated in 2013 which was the year before the
military conflicts started. Since that time, the social and
economic environment has been particularly challenging. It is
therefore a significant achievement for Arricano to have not only
maintained the portfolio but to have expanded it with the opening
of the Prospekt Mall in 2014 and to have adapted the business to be
able to grow in the current environment.
Arricano's management team has been dynamic in its approach to
understanding and anticipating new trends in 21(st) Century
retailing and their impact upon city based shopping centres. The
focus has been on working in partnership with tenants to jointly
enhance the attraction of each Arricano shopping centre making them
places where consumers want to visit in order to spend time
relaxing, socialising and shopping. To achieve this objective, a
key focus in 2017 was managing tenant mix and turnover and ensuring
tenants were rotated to keep retail environments refreshed and
new.
The success of the Company's strategy to increase the appeal of
each shopping centre in the portfolio is reflected in the
significant increase in visitor numbers up by 17% in 2017 to 45.2
million visitors. This is an excellent achievement and demonstrates
the significant appeal of the shopping centres.
Tenant demand for space has continued to be strong and the
Company has worked hard to select new tenants who add to the appeal
and ambience of the shopping centres thereby increasing occupancy
and number of visitors. Occupancy across the portfolio improved to
98.7%, up from 98.3% at 31 December 2016, demonstrating Arricano's
ability to both attract new and keep existing tenants. In 2017, the
Company signed 101 new lease agreements relating to 11,574 sqm of
retail space.
As at 31 December 2017, Arricano had 147,500 sqm of completed
assets spread across five completed shopping centres. In addition,
the Company also owns title rights for 14 ha. of development land
divided into three specific sites which are at varying stages of
development. These are in Lukianivka and Petrivka (both Kyiv), as
well as Rozumovska (Odessa).
During the financial year, the ongoing court case regarding
Arricano's 49.97% shareholding in Assofit Holdings Limited
("Assofit"), the holding company which held the Sky Mall shopping
centre, continued with further awards from the High Court of
England and Wales ruling in Arricano's favour. Arricano's focus is
now on enforcement of the Court's decision and seeing the rightful
return of the asset to the Company. In October 2017, Arricano
became one of 46 member companies of the Ukrainian Network of
Integrity and Compliance (UNIC) a new movement aiming to promote
ethical business practices.
During 2017, Arricano was nominated for and won a series of
industry awards reflecting the Company's leadership across multiple
areas. At the well regarded Retail & Development Business
Awards, Arricano won awards for Corporate & Social
Responsibility, Marketing and came second in The Best Medium-Sized
Shopping Mall rating. The National Commercial Property awards saw
Arricano win the Best Marketing Project in Shopping Malls for its
social campaign 'Change Old Things for New'. Since the year-end,
Arricano attended the Consumer's Choice Retail Awards and won
awards for best shopping mall in Kryvyi Rih, and the best shopping
mall in Zaporizhia.
On behalf of the Board I would like to thank all the employees
across the business, for their contributions and commitment to the
business during 2017 and I look forward to them achieving another
successful year in 2018.
Arricano's long-term strategy remains focused on developing and
protecting value of the portfolio. Key metrics of visitor numbers
and occupancy demonstrate the success of the management's
strategies to date. However, retail is a fast-moving world and the
Company is focused on anticipating future trends and ensuring that
Arricano centres maintain their strong appeal.
Philip Scales
Interim Independent Chairman
25 April 2018
Chief Executive Officer's Report
Introduction
2017 was a satisfying year for the business, while the economy
in Ukraine grew by 2.5%, Arricano grew much faster recording a 19%
increase in sales together with the independent valuation of the
portfolio of assets increasing by 26% to USD 221 million. This was
therefore a pleasing performance and a reflection of the Company's
success in continuing to enhance the appeal of the Group's shopping
centres.
2017 was also the year of the Customer Experience with the
management team focused on better understanding the primary issues
facing tenants and visitors. Research combined with practical
experience helped to identify areas where the Company has been able
to remove potential issues and thereby increase loyalty and
ultimately revenues.
Results
Recurring revenues for the period were USD 27.5 million (2016:
USD 23.1 million). As a result, the Net Operating Income ("NOI")
from the operating properties excluding revaluation gains were USD
17.6 million compared to USD 15.9 million in 2016.
Profit before tax was USD 33.6 million (2016: USD 29.2 million).
This increase was achieved through a combination of improved
recurring revenues and an increase in the valuation of the
Company's property portfolio.
The portfolio of assets was externally and independently valued
as at 31 December 2017 by Expandia LLC, part of the CBRE Affiliate
Network. The portfolio was valued at USD 221.3 million (31 December
2016: USD 175.7 million), the increase in the value of the
portfolio was primarily driven by the increase in rental income and
through conservative operational cost management.
Bank debt at the year-end was USD 43 million, with the majority
of borrowings at the project level at an average interest rate of
11.1%. Loans mature between 2017 and 2020 and the Company's banks'
loan to investment property value ratio is 19.5%. In addition,
there was USD 1.2 million of restricted cash, cash equivalents, and
restricted deposits, as at 31 December 2017.
The Market
With 45.2 million visits to Arricano's shopping centres in 2017,
it is clear consumers are still enjoying visiting shopping centres,
despite global trends towards shopping online and the wider
political and economic challenges that persist in Ukraine. The
outlook for the business is therefore positive and the management
team remains focused on ensuring the Company is constantly adapting
and keeping up with modern trends and lifestyle preferences.
To that end in 2017, technology was a made a central feature of
the Group, with the objective of incorporating technology-led
solutions across the business. Investment in these new solutions is
supporting internal functions, whilst also being shared with
tenants to support their businesses with retail focused online
tools such as 'Portal for Tenants' providing access to all
documentation and additional services to increase tenants'
turnover.
2017 also saw a significant increase in the use of social media
across the business, moving away from more traditional
communication channels to focus on digital. Arricano estimates
social media interaction increased sixfold during the period under
review, with each shopping centre launching dedicated YouTube
channels as part of this strategy. Through the use of these digital
channels, the Company is also compiling a database of customer
preferences, based upon their digital behaviour which is intended
to support more targeted customer communication in the future.
At the heart of the Company's operational focus is the simple
aim of enhancing the appeal of the shopping centres. Central to
this, is maintaining the rotation of tenants so that each shopping
centre is able to offer new brands and new stores, thereby keeping
the experience of visiting each shopping centre fresh. Selection of
new tenants is a genuine skill and the Company is applying
increasing resources to researching potential tenants and assessing
their likely level of appeal to consumers.
These efforts are clearly producing results given the 17%
increase in visitor numbers during the year. Alongside achieving a
good mix of tenants an important reason behind the popularity of
the Company's shopping centres is having the right balance of
social spaces within each centre. With this in place, visitors can
come and find their favourite retailers under one roof and also
enjoy the well-designed social spaces to meet, eat and relax.
In terms of the new developments, the Company is progressing
projects in Odessa and Lukyanivka, Kyiv. Our main focus is on
development of the Lukyanivka project, construction is underway and
we are currently assessing financing options to complete the
project in 2020.
Outlook
As a developer and operator of city centre shopping centres
Arricano is a market leader in Ukraine. Maintaining this position
requires Arricano to be constantly evolving its offering to
consumers and tenants alike. In 2018, an important focus for the
Group is to improve upon its environmental credentials, currently
the Company is evaluating the benefits of eco-friendly energy
solutions such as solar panels and solar blinds within the
Group.
Trading in 2018 has continued to be positive with occupancy and
rental income in line with management expectations.
Mykhailo Merkulov
Chief Executive Officer
25 April 2018
Operating Portfolio
In the following section we have provided an overview of each
asset in the completed portfolio.
Sun Gallery (Kryvyi Rih)
Sun Gallery, opened in 2008, is one of the largest shopping
malls in Kryvyi Rih. It is located at 30-richchia Peremohy Square,
in the Saksahanskyi district in the northeastern part of Kryvyi
Rih. It has easy access by car and has good public transport links.
The primary shopping centre catchment area includes almost the
whole territory of the Saksahanskyi district and part of the
Pokrovskyy district. The secondary area covers the Dovhyntsivskyi
district.
The shopping centre is on two levels, spanning a total GLA of
approximately 37,470 sqm. There are approximately 139 tenants,
including children's entertainment zone, a food court with
restaurants and cafes. During 2017, 25 new agreements were signed
bringing new brands to the Sun Gallery, including brands that were
previously unavailable in the region. Two anchor tenants were
added: LC Waikiki (fashion) and Jysk (home goods) both stores
opened in 2017.
Key statistics
-- GLA - c. 37,470 sqm
-- Vacancy rate as at 31 December 2017 - 0.4 per cent.
-- Average monthly rental rate 2017 - USD 12.7 /sqm
-- Average Monthly Visitors 2017 - 0.4 million
-- Bank debt at 31 December 2017 - USD 7.0 million
-- Valuation at 31 December 2017 - USD 25.1 million
City Mall (Zaporizhzhia)
City Mall is one of the largest shopping centres in Zaporizhzhia
with a total GLA of approximately 21,440 sqm on a single level. The
shopping centre is located on the Dnipro river approximately 3km
from Zaporizhzhia city centre, between two densely populated areas
of Zaporizhzhia in the Alexandrovskyy administrative district (1b
Zaporizska street), with convenient accessibility by public and
private transport.
City Mall comprises a gallery with approximately 88
international and local tenants, including a food court with 5
restaurants, a children's entertainment zone and parking which is
shared with DIY superstore Epicenter. City Mall's anchor tenants
are the hypermarket Auchan, which is the largest in the city, and
the electronics store Comfy. During 2017, 14 new contracts were
signed bringing new brands to the City Mall, including brands that
were previously unavailable in the region. Building on the fourth
successive year of nil vacancy rates, the tenant portfolio
continues to be strengthened, with additions such as
McDonald's.
Key statistics
-- GLA - c. 21,440 sqm
-- Vacancy rate as at 31 December 2017 - 0.0 per cent.
-- Average monthly rental rate 2017 - USD 24.7 /sqm
-- Average Monthly Visitors 2017 - 0.5 million
-- Bank debt at 31 December 2017 - USD 7.4 million
-- Valuation at 31 December 2017 - USD 24.5 million
South Gallery (Simferopol)
The site is located in the north of Simferopol, about five
minutes' driving distance from one of the city's major crossroads,
Moskovska Square. The site is linked to the city centre and
residential areas east of the city by one of the main thoroughfares
of Simferopol. The primary shopping centre catchment area includes
northern parts of the Kyivskyi and Zaliznychnyi districts. The
secondary area covers almost the whole city, except for its very
southern parts.
South Gallery shopping centre (Phases I and II) is situated on a
land plot with a total area of 10.2 ha. Phase I of the shopping
centre tenants include Auchan (international hypermarket chain),
with a small gallery. With the completion of Phase II in February
2014 the mall is now a regional destination shopping centre with a
total GLA of 33,390 sqm.
During 2017, 20 new lease contracts were signed, including
LCWaikiki (expected to be opened in 2018) and Zenden.
Key statistics
-- GLA - 33,390 sqm
-- Vacancy rate as at 31 December 2017 - 0.5 per cent.
-- Average monthly rental rate 2017 - USD 19.4 /sqm
-- Average Monthly Visitors 2017 - 0.8 million
-- Bank debt at 31 December 2016 - USD Nil
-- Valuation at 31 December 2017 - USD 46.8 million
RayON (Kyiv)
The RayON shopping centre was opened to the public in August
2012. The shopping centre is located in the north east of Kyiv
along the left bank of the Dnipro river, with satisfactory
transportation links.
The shopping centre has a GLA of approximately 24,300 sqm on two
levels, with approximately 860 parking spaces. The concept for
RayON is a district shopping centre, which focuses on food,
clothing and convenience products. The shopping centre is anchored
by a Silpo foods supermarket, one of the biggest supermarket chains
in Ukraine and a member of the Fozzy group. Electronics supermarket
Comfy also operates within the shopping centre.
RayON has several restaurants and a children's entertainment
zone to complement the retail facilities. RayON is located in the
middle of the Desnjanski district, one of the most densely
populated areas in Kyiv.
Rayon completed the refurbishment of its food court in and the
installation of baby-rooms in the centre has produced very positive
feedback from customers with young children. During 2017, 18 new
lease contracts were signed, including McDonalds. "Boomer" (Cinema)
opened two additional halls.
Key statistics
-- GLA - c. 24,300 sqm
-- Vacancy rate as at 31 December 2017 - 4.64 per cent.
-- Average monthly rental rate 2017 - USD 16.8 /sqm
-- Average Monthly Visitors 2017 - 0.5 million
-- Bank debt at 31 December 2017 - USD 16.1 million
-- Valuation at 31 December 2017 - USD 34.9million
Prospect (Kyiv)
SEC Prospect is located directly on the inner ring road of Kyiv
on the left bank of the Dnipro river in the Desnianskyi
administrative district, with good automobile accessibility and
public transport links. The area is already recognised as a popular
shopping destination, located close to a large open-air market and
a bazaar-style shopping centre (SC Darinok).
The SEC consists of a two-storey retail and leisure complex with
a total gross building area of approximately 61,872 sqm (excluding
roof and surface parking and excluding the hypermarket building
referred to below) and a GLA of approximately 30,900 sq. m. and
parking with 1,350 parking spaces. The centre opened at the end of
2014.
2017 saw the successful continuation of free training sessions
for shop personnel, building on demand from the previous year.
During 2017, 24 new lease contracts were signed. Brands such as
Vovk and Budynok Ihrashok were introduced as tenants, with
international brands such as Xiaomi and Smyk also joining the
centre.
Key statistics
-- GLA - c. 30,900 sqm
-- Vacancy rate as at 31 December 2017 - 1.7 per cent.
-- Average monthly rental rate 2017 - USD 13.9 /sqm
-- Average Monthly Visitors 2017 - 1.5 million
-- Bank debt at 31 December 2017 - USD 12.7 million
-- Valuation at 31 December 2017 - USD 43.7 million
Development Properties
Lukianivka (Kyiv)
The Lukianivka development property is located on the right bank
of Kyiv in the Shevchenkivskyi administrative district. The land
plot has a total area of 4.14 hectares. The Group is planning to
construct its flagship shopping centre in the central business
district of Kyiv, with a more upmarket vision in terms of the
concept and tenant mix. The Lukianivka development property allows
for the construction of a multi-use complex, consisting of a
shopping and leisure centre including, inter alia, a hypermarket,
shops and shopping galleries, a leisure and entertainment area, a
food court restaurants and a service area. The property would also
have two underground parking levels and one seven-storey
residential building, construction of which will continue after
completion of the shopping centre. It is expected that the GLA of
the shopping and entertainment centre would be approximately 47,000
sqm. The Group obtained the relevant construction permit in June
2013.
Land plot: 4.14 hectares
Title: Leasehold title plus title to several
buildings (historical landmarks)
on the site
Development: Retail, leisure and entertainment
centre
Gross construction area c.78,000 sqm for the shopping centre
(GBA): (plus c.38,500 sqm GBA for parking)
Gross leasable area (GLA): c.47,000 sqm
Parking spaces: To include roof parking and underground
parking
Type: City shopping centre (pocket hypermarket
anchored) with residential
Actual construction start Q4 2013
date:
Forecast opening date: 2020
Rozumovska (Odesa)
The Black Sea port of Odesa is Ukraine's fourth largest city,
with over one million inhabitants, and is a popular leisure
destination. The Rozumovska development property is located partly
on the façade of Rozumovska Street close to its intersection with
Balkovska Street, in the Malynovskyi administrative district of
Odesa, in close proximity to public transportation links.
The site is located opposite the city's main bus station.
Rozumovska Street connects directly to the highway to Kyiv.
The Group has signed a lease agreement for the land plot with a
total area of 4.5 hectares. The Rozumovska development property is
expected to be a three-storey shopping and entertainment centre
with a sufficient number of parking spaces to accommodate customer
demand. The target GLA is approximately 38,000 sqm, including a
hypermarket, shops and shopping galleries, a leisure and
entertainment area, a food court restaurants and a service area.
The preliminary design concept of the project has been completed
and the developer is currently applying for the relevant consents
and permits, given current market conditions.
Land plot: 4.5 hectares
Location: Odesa
Title: Leasehold
Development: retail, leisure and entertainment
centre
Gross construction area To be defined
(GBA):
Gross leasable area (GLA): 38,000 sqm
Parking spaces: 1,400
Type: Regional mall (hypermarket anchored)
Expected construction start to be defined
date:
Forecast opening date: to be defined
Petrivka (Kyiv)
The Petrivka development property is located on the right bank
of the Dnipro river in Kyiv, in the Obolonskyi administrative
district. The site has an area of 5.4 ha. The Group is currently
considering the best use of the site, which could include both
residential and retail use.
Finance Report
The Company's revenue mainly consists of rental income from the
portfolio of the completed properties. During the year ended 31
December 2017 the Company's rental income amounted to USD 27.5
million (2016: USD 23.1 million).
The total fair valuation of the Company's portfolio was USD
221.3 million as at 31 December 2017 (2016: USD 175.7 million). The
main reasons for the increase of fair value of the Company's
portfolio were successful rotations of lessees, increase in rental
rates and close control of costs. Operating expenses during the
period were USD 7.1 million, compared to USD 4.5 million in the
previous year reflecting increases primarily in consulting and
legal expenses.
As a result of the above, profit from operating activities has
increased to USD 65.5 million (2016: USD 43.8 million).
Finance expenses in 2017 increased to USD 32.5 million being a
result of recognized foreign exchange losses (2016 USD 17.7
million), while finance income was USD 0.7 million (2016 USD 3.1
million).
The Company's net profits for the year ended 31 December 2017,
was USD 25.8 million (2016: USD 23.5 million). The improvement has
come from property valuation gains, but held back by the increase
in finance costs.
Net Asset Value as at 31 December 2017 was USD 52.2 million
(2016: USD 24.2 million), resulting in an Adjusted Net Asset Value
per Share of USD 0.51 (2016: USD 0.23).
Total assets, as at 31 December 2017, amounted to USD 230.9
million (2016: USD187.1 million), an increase of 23.4 % from the
previous year. This mainly related the increase in investment
property value, as well as trade and other receivables.
Cash balances as at 31 December 2017 including cash equivalents
and current deposits amounted to USD 2.61 million (2016: USD 4.95
million).
As at 31 December 2017, the Company had USD 98.7 million of
outstanding borrowings.
Arricano Real Estate PLC
Consolidated financial statements as at and for
the year ended 31 December 2017
Consolidated statement of financial position as
at 31 December 2017
Note 31 December 31 December
2017 2016
(in thousands of USD)
Assets
Non-current assets
Investment property 4 221,265 175,663
Long-term VAT receivable 6 1,016 1,215
Property and equipment 146 214
Intangible assets 42 38
Total non-current assets 222,469 177,130
Current assets
Trade and other receivables 7 2,364 1,162
Loans receivable 5 296 305
Prepayments made and other assets 427 901
VAT receivable 6 1,011 1,067
Assets classified as held for sale 8 1,541 1,590
Income tax receivable 228 -
Cash and cash equivalents 9 2,609 4,953
Total current assets 8,476 9,978
Total assets 230,945 187,108
The consolidated statement of financial position is to be read
in conjunction with the notes to, and forming part of, the
consolidated financial statements.
Arricano Real Estate PLC
Consolidated financial statements as at and for the
year ended 31 December 2017
Consolidated statement of financial position as at
31 December 2017
(continued)
31 December 31 December
Note 2017 2016
(in thousands of USD)
Equity and Liabilities
Equity 10
Share capital 67 67
Share premium 183,727 183,727
Non-reciprocal shareholders contribution 59,713 59,713
Retained earnings (accumulated deficit) 834 (24,973)
Other reserves (61,983) (61,983)
Foreign currency translation differences (130,176) (132,371)
Total equity 52,182 24,180
Non-current liabilities
Long-term borrowings 12 58,765 36,845
Advances received 15 125 325
Finance lease liability 13 7,037 6,855
Trade and other payables 14 9,885 4,628
Other long-term liabilities 16 20,091 98
Deferred tax liability 21 5,091 3,530
Total non-current liabilities 100,994 52,281
Current liabilities
Short-term borrowings 12 39,891 64,239
Trade and other payables 14 25,258 15,759
Taxes payable 1,429 1,106
Advances received 15 4,922 4,425
Current portion of finance lease
liability 13 2 2
Other liabilities 16 6,267 25,116
Total current liabilities 77,769 110,647
Total liabilities 178,763 162,928
Total equity and liabilities 230,945 187,108
The consolidated statement of financial position is to be read
in conjunction with the notes to, and forming part of, the
consolidated financial statements.
Arricano Real Estate PLC
Consolidated financial statements as at and for the
year ended 31 December 2017
Consolidated statement of profit or loss and other comprehensive
income for the year ended 31 December 2017
Note 2017 2016
(in thousands of USD, except for earnings
per share)
Revenue 17 27,549 23,090
Other income 368 56
Gain on revaluation of investment
property 4(a) 47,873 27,928
Goods, raw materials and services
used 18 (977) (837)
Operating expenses 19 (7,146) (4,545)
Salary costs (1,790) (1,384)
Salary related charges (294) (343)
Depreciation and amortisation (130) (122)
Profit from operating activities 65,453 43,843
Finance income 20 668 3,095
Finance costs 20 (32,545) (17,706)
Profit before income tax 33,576 29,232
Income tax expense 21 (7,769) (5,739)
Net profit for the year 25,807 23,493
Items that will be reclassified to
profit or loss:
Foreign exchange losses on monetary
items that form part of net investment
in the foreign operation, net of tax
effect (4,407) (28,356)
Foreign currency translation differences 6,602 25,993
Total items that will be reclassified
to profit or loss 2,195 (2,363)
Other comprehensive income (loss) 2,195 (2,363)
Total comprehensive income for the
year 28,002 21,130
Weighted average number of shares
(in shares) 11 103,270,637 103,270,637
Basic and diluted earnings per share,
USD 11 0.24990 0.22749
The consolidated statement of profit or loss and other
comprehensive income is to be read in conjunction with the notes
to, and forming part of, the consolidated financial statements.
Arricano Real Estate PLC
Consolidated financial statements as at and for the
year ended 31 December 2017
Consolidated statement of cash flows for
the year ended 31 December 2017
Note 2017 2016
(in thousands of USD)
Cash flows from operating activities
Profit before income tax 33,576 29,232
Adjustments for:
Finance income 20 (668) (3,095)
Finance costs, excluding foreign
exchange loss 20 32,090 13,620
Gain on revaluation of investment
property 4(a) (47,873) (27,928)
Depreciation and amortisation 130 122
Unrealised foreign exchange loss 455 4,089
Other income (368) -
Allowance for bad debts 19 425 5
Operating cash flows before changes
in working capital 17,767 16,045
Change in trade and other receivables (1,304) (413)
Change in prepayments made and other
assets 46 (69)
Change in finance lease liability - 56
Change in VAT receivable 196 1,721
Change in income tax receivable and
taxes payable 370 497
Change in trade and other payables 1,027 (939)
Change in advances received 348 309
Change in other liabilities (179) 830
Income tax paid (1,486) (866)
Interest paid 12 (5,226) (6,480)
Cash flows from operating activities 11,559 10,691
Cash flows from investing activities
Acquisition of investment property
and settlements of payables due to
constructors (6,622) (1,341)
Acquisition of property and equipment (70) (187)
Repayment of the restricted deposit - 800
Interest received 240 257
Cash flows used in investing activities (6,452) (471)
The consolidated statement of cash flows is to be read in
conjunction with the notes to, and forming part of, the
consolidated financial statements.
Arricano Real Estate PLC
Consolidated financial statements as at and for the year ended
31 December 2017
Consolidated statement of cash flows for the year ended 31
December 2017
(continued)
Note 2017 2016
(in thousands of USD)
Cash flows from financing activities
Proceeds from borrowings, net of
transaction costs - 1,860
Repayment of borrowings 12 (6,777) (9,309)
Finance lease payments 12 (659) (612)
Cash flows used in financing activities (7,436) (8,061)
Net (decrease)/increase in cash and
cash equivalents (2,329) 2,159
Cash and cash equivalents at 1 January 4,953 3,349
Effect of movements in exchange rates
on cash and cash equivalents (15) (555)
Cash and cash equivalents at 31 December 9 2,609 4,953
Non-cash movements
During the year ended 31 December 2017,an acquisition of a land
plot held on leasehold of USD 396 thousand occurred through a
finance lease (2016: acquisition and disposal of a land plot held
on leasehold of USD 954 thousand and USD 1,173 thousand,
respectively).
The consolidated statement of cash flows is to be read in
conjunction with the notes to, and forming part of, the
consolidated financial statements.
Arricano Real Estate PLC
Consolidated financial statements as at and for the year ended 31 December 2017
Consolidated statement of changes in equity as at and for the year ended 31 December 2017
---
Attributable to equity holders of the parent
-------------------------------------------------------------------------------------------------------------------------------
Foreign
Non-reciprocal currency
Share shareholders Accumulated Other translation
Share capital premium contribution deficit reserves differences Total
(in thousands
of USD)
Balances at 1
January 2016 67 183,727 59,713 (48,466) (61,983) (130,008) 3,050
Total
comprehensive
income/(loss)
for the year
Net profit for
the year - - - 23,493 - - 23,493
Foreign
exchange
losses on
monetary
items that
form part of
net
investment
in the
foreign
operation,
net
of tax effect - - - - - (28,356) (28,356)
Foreign
currency
translation
differences - - - - - 25,993 25,993
Total other
comprehensive
loss
for the year - - - - - (2,363) (2,363)
Total
comprehensive
income for
the year - - - 23,493 - (2,363) 21,130
Balances at 31
December 2016 67 183,727 59,713 (24,973) (61,983) (132,371) 24,180
The consolidated statement of changes in equity is to be read in
conjunction with the notes to, and forming part of, the
consolidated financial statements.
Arricano Real Estate PLC
Consolidated financial statements as at and for the year ended 31 December 2017
Consolidated statement of changes in equity as at and for the year ended 31 December 2017 (continued)
Attributable to equity holders of the parent
---------------------------------------------------------------------------------------------------------
Foreign
Non-reciprocal currency
Share Share shareholders Accumulated Other translation
capital premium contribution deficit reserves differences Total
(in thousands
of USD)
Balances at 1
January 2017 67 183,727 59,713 (24,973) (61,983) (132,371) 24,180
Total
comprehensive
income/(loss)
for the year
Net profit for
the year - - - 25,807 - - 25,807
Foreign
exchange
losses on
monetary
items that
form part of
net
investment
in the
foreign
operation,
net of
tax effect - - - - - (4,407) (4,407)
Foreign
currency
translation
differences - - - - - 6,602 6,602
Total other
comprehensive
profit
for the year - - - - - 2,195 2,195
Total
comprehensive
income for
the year - - - 25,807 - 2,195 28,002
Balances at 31
December 2017 67 183,727 59,713 834 (61,983) (130,176) 52,182
The consolidated statement of changes in equity is to be read in
conjunction with the notes to, and forming part of, the
consolidated financial statements.
Notes to the consolidated financial statements
1 Background
(a) Organisation and operations
Arricano Real Estate PLC (Arricano, the Company or the Parent
Company) is a public company that was incorporated in Cyprus and is
listed on the AIM Market of the London Stock Exchange. The Parent
Company's registered address is office 1002, 10th floor, Nicolaou
Pentadromos Centre, Thessalonikis Street, 3025 Limassol, Cyprus.
Arricano and its subsidiaries are referred to as the Group, and
their principal place of business is in Ukraine.
The main activities of the Group are investing in the
development of new properties in Ukraine and leasing them out. As
at 31 December 2017, the Group operates five shopping centres in
Kyiv, Simferopol, Zaporizhzhya and Kryvyi Rig with a total leasable
area of over 147,500 square meters and is in the process of
development of two new investment projects in Kyiv and Odesa, with
one more project to be consequently developed.
The average number of employees employed by the Group during the
year is 106 (2016: 112).
(b) Ukrainian business environment
The Group's operations are primarily located in Ukraine. The
political and economic situation in Ukraine has been subject to
significant turbulence in recent years and demonstrates
characteristics of an emerging market. Consequently, operations in
the country involve risks that do not typically exist in other
markets.
An armed conflict in certain parts of Lugansk and Donetsk
regions, which started in spring 2014, has not been resolved and
part of the Donetsk and Lugansk regions remains under control of
the self-proclaimed republics, and Ukrainian authorities are not
currently able to fully enforce Ukrainian laws on this territory.
Various events in March 2014 led to the accession of the Republic
of Crimea to the Russian Federation, which was not recognised by
Ukraine and many other countries. This event resulted in a
significant deterioration of the relationship between Ukraine and
the Russian Federation.
Ukraine's economic situation deteriorated significantly since
2014 as a result of the fall in trade with the Russian Federation
and military tensions in Eastern Ukraine. Although instability
continued throughout 2016 and 2017, Ukrainian economy showed first
signs of recovery with inflation rate slowing down, lower
depreciation of hryvnia against major foreign currencies, growing
international reserves of the National Bank of Ukraine (the "NBU")
and general revival in business activity.
In 2016 and 2017, the NBU made certain steps to provide a relief
to the currency control restrictions introduced in 2014-2015. In
particular, the required share of foreign currency proceeds subject
to mandatory sale on the interbank market was gradually decreased,
while the settlement period for export-import transactions in
foreign currency was increased. Also, the NBU allowed Ukrainian
companies to pay dividends abroad with a certain monthly
limitation.
The banking system remains fragile due to low level of capital
and weak asset quality and the Ukrainian companies and banks
continue to suffer from the lack of funding from domestic and
international financial markets.
The International Monetary Fund continued to support the
Ukrainian government under the four-year Extended Fund Facility
Programme approved in March 2015. Other international financial
institutions have also provided significant technical support in
recent years to help Ukraine restructure its external debt and
launch various reforms (including anticorruption, corporate law,
and gradual liberalization of the energy sector).
In August 2017 Moody's upgraded Ukraine's credit rating to Caa2,
with a positive outlook, reflecting recent government reforms and
improved foreign affairs. Further stabilization of economic and
political environment depends on the continued implementation of
structural reforms and other factors.
Whilst management believes it is taking appropriate measures to
support the sustainability of the Group's business in the current
circumstances, a continuation of the current unstable business
environment could negatively affect the Group's results and
financial position in a manner not currently determinable. These
consolidated financial statements reflect management's current
assessment of the impact of the Ukrainian business environment on
the operations and the financial position of the Group. The future
business environment may differ from management's assessment.
As at 31 December 2017, the carrying value of the Group's
investment property located in Simferopol, the administrative
centre of the Republic of Crimea, amounted to USD 46,800 thousand
(2016: USD 35,400 thousand). The ultimate effect of these
developments in the Republic of Crimea on the Group's ability to
continue operations in this region, to realise its related assets
and to maintain and secure its ownership rights cannot yet be
determined.
(c) Cyprus business environment
The Cyprus economy has been adversely affected during the last
few years by the economic crisis. The negative effects have to some
extent been resolved, following the negotiations and the relevant
agreements reached with the European Commission, the European
Central Bank and the International Monetary Fund (IMF) for
financial assistance which was dependent on the formulation and the
successful implementation of an Economic Adjustment Program. The
agreements also resulted in the restructuring of the two largest
(systemic) banks in Cyprus through a "bail in".
The Cyprus Government has successfully completed earlier than
anticipated the Economic Adjustments Program and exited the IMF
program on 7 March 2016, after having recovered in the
international markets and having only used EUR 7,25 billion of the
total EUR 10 billion earmarked in the financial bailout. Under the
new Euro area rules, Cyprus will continue to be under surveillance
by its lenders with bi-annual post-program visits until it repays
75% of the economic assistance received.
Although there are signs of improvement, especially in the
macroeconomic environment of the country's economy including growth
in GDP and reducing unemployment rates, significant challenges
remain that could affect the estimates of the Company's cash flows
and its assessment of impairment of financial and non-financial
assets.
The Group's management believes that it is taking all the
necessary measures to maintain the viability of the Group and the
development of its business in the current business and economic
environment and that no adverse impact on the Group's operations is
expected.
(d) Russian business environment
The Group's operations are also carried out in the Russian
Federation. Consequently, the Group is exposed to the economic and
financial markets of the Russian Federation which display
characteristics of an emerging market. The legal, tax and
regulatory frameworks continue development, but are subject to
varying interpretations and frequent changes which together with
other legal and fiscal impediments contribute to the challenges
faced by entities operating in the Russian Federation.
The conflict in Ukraine and related events has increased the
perceived risks of doing business in the Russian Federation. The
imposition of economic sanctions on Russian individuals and legal
entities by the European Union, the United States of America,
Japan, Canada, Australia and others, as well as retaliatory
sanctions imposed by the Russian government, has resulted in
increased economic uncertainty including more volatile equity
markets, a depreciation of the Russian Rouble, a reduction in both
local and foreign direct investment inflows and a significant
tightening in the availability of credit. In particular, some
Russian entities may be experiencing difficulties in accessing
international equity and debt markets and may become increasingly
dependent on Russian state banks to finance their operations. The
longer term effects of recently implemented sanctions, as well as
the threat of additional future sanctions, are difficult to
determine.
The consolidated financial statements reflect management's
assessment of the impact of the Russian business environment on the
operations and the financial position of the Group. The future
business environment may differ from management's assessment.
2 Basis of preparation
(a) Statement of compliance
These consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRSs") as adopted by the European Union (EU).
(b) Basis of measurement
The consolidated financial statements have been prepared under
the historical cost basis except for investment property, which is
carried at fair value.
(c) Functional and presentation currency
The functional currency of Arricano Real Estate PLC is the US
dollar (USD). The majority of Group entities are located in Ukraine
and have the Ukrainian Hryvnia (UAH) as their functional currency,
except for Voyazh-Krym LLC, which has the Russian Rouble (RUB) as
its functional currency starting from 1 May 2014, following the
changes in the Ukrainian business environment described in Note
1(b). The Group entities located in Cyprus, Estonia, Isle of Man
and BVI have the US dollar as their functional currency, since
substantially all transactions and balances of these entities are
denominated in US dollar. The Group entity located in the Russian
Federation, Green City LLC, has the Russian Rouble (RUB) as its
functional currency, since substantially all transactions and
balances of this entity are denominated in the Russian Rouble.
For the benefits of principal users, the management chose to
present the consolidated financial statements in USD, rounded to
the nearest thousand.
In translating the consolidated financial statements into USD
the Group follows a translation policy in accordance with
International Financial Reporting Standard IAS 21 The Effects of
Changes in Foreign Exchange Rates and the following rates are
used:
-- Historical rates: for the equity accounts except for net
profit or loss and other comprehensive income (loss) for the
year.
-- Year-end rate: for all assets and liabilities.
-- Rates at the dates of transactions: for the statement of
profit or loss and other comprehensive income and for capital
transactions.
UAH and RUB are not freely convertible currencies outside
Ukraine and the Russian Federation, and, accordingly, any
conversion of UAH and RUB amounts into USD should not be construed
as a representation that UAH and RUB amounts have been, could be,
or will be in the future, convertible into USD at the exchange rate
shown, or any other exchange rate.
The principal USD exchange rates used in the preparation of
these consolidated financial statements are as follows.
Year-end USD exchange rates as at 31 December are as
follows:
Currency 2017 2016
UAH 28.07 27.19
RUB 57.60 60.66
Average USD exchange rates for the years ended 31 December are
as follows:
Currency 2017 2016
UAH 26.60 25.59
RUB 58.30 66.83
As at the date of these consolidated financial statements are
authorised for issue, 25 April 2018, the exchange rate is UAH 26.18
to USD 1.00 and RUB 61.66 to USD 1.00.
(d) Use of judgments, estimates and assumptions
The preparation of consolidated financial statements in
conformity with IFRSs as adopted by the EU requires management to
make judgments, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses and the disclosure of
contingent assets and liabilities. Actual results may differ from
these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected.
In particular, information about significant areas of estimation
uncertainty and critical judgments in applying accounting policies
that have the most significant effect on the amounts recognised in
the consolidated financial statements and have significant risk of
resulting in a material adjustment within the next financial year
are included in the following notes:
-- Note 2(c) - determination of functional currency,
-- Note 4 - valuation of investment property,
-- Note 5 - valuation of loans receivable and investment in Filgate Credit Enterprises Limited,
-- Note 7 - valuation of trade and other receivables,
-- Note 8(a) - classification of assets held for sale,
-- Note 23(d)(i) - legal case in respect of Assofit Holdings Limited and valuation of related available-for-sale financial asset.
(e) Going concern
As at 31 December 2017, the Group's current liabilities exceed
current assets by USD 69,293 thousand. This condition indicates the
existence of a material uncertainty that may cast significant doubt
about the Group's ability to continue as a going concern.
At the same time, the Group has positive equity of USD 52,182
thousand as at 31 December 2017, generated net profit of USD 25,807
thousand and positive cash flows from operating activities
amounting to USD 11,559 thousand for the year then ended.
Management is undertaking the following measures in order to
ensure the Group's continuing operation on a going concern
basis:
-- The Group has financial support from the ultimate controlling
party. Based on representations received in writing from entities
under common control, management believes that the Group will not
be required to settle the outstanding loans and accrued interest to
related parties in the amount of USD 16,513 thousand plus any
accruing interest during the year ending 31 December 2018.
-- In April 2018, the Group has received a waiver from
Barleypark Limited waiving repayment of the loan during twelve
months ending 31 December 2018, amounting to USD 20,420 thousand,
which is payable on demand and presented as short-term liability as
at 31 December 2017.
-- The Group will be able to draw on existing facilities granted
from entities under common control, should this be required for
operational and other needs of the Group.
-- The Group expects to obtain bank financing to refinance loans
from PJSC "Bank "St. Petersburg" amounting to USD 16,062 thousand
as at 31 December 2017 with contractual maturity in 2018-2020,
short-term part of which amounts to USD 3,705 thousand.
-- During the year ended 31 December 2017, management was able
to conclude a number of new tenancy agreements and increase
occupancy rate of its shopping centres. Besides, the Group managed
to gradually increase its rental rates during the year for existing
tenants.
-- In accordance with the budget approved for 2018, the Group
plans to increase its operating income during the next year.
Management believes that the measures that it undertakes, as
described above, will allow the Group to maintain the positive
working capital and operate on a going concern basis in the
foreseeable future.
These consolidated financial statements are prepared on a going
concern basis, which contemplates the realisation of assets and the
settlement of liabilities in the normal course of business.
(f) Measurement of fair values
A number of the Group's accounting policies and disclosures
require the measurement of fair values, for both financial and
non-financial assets and liabilities.
When measuring the fair value of an asset or a liability, the
Group uses market observable data as far as possible. Fair values
are categorised into different levels in a fair value hierarchy
based on the inputs used in the valuation techniques as
follows:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a
liability might be categorised in different levels of the fair
value hierarchy, then the fair value measurement is categorised in
its entirety in the same level of the fair value hierarchy as the
lowest level input that is significant to the entire
measurement.
The Group recognises transfers between levels of the fair value
hierarchy at the end of the reporting period during which the
change has occurred.
Further information about the assumptions made in measuring fair
values is included in the following Notes:
-- Note 4 - investment property; and
-- Note 22(e)(iii) - fair values.
(g) Change in presentation
Management made some minor amendments to comparative information
in a way that it conforms with the current year presentation.
3 Significant accounting policies
The accounting policies set out below are applied consistently
to all periods presented in these consolidated financial
statements, and have been applied consistently by Group
entities.
(a) Basis of consolidation
(i) Business combinations
Business combinations are accounted for using the acquisition
method as at the acquisition date, which is the date on which
control is transferred to the Group.
The Group measures goodwill at the acquisition date as:
-- The fair value of the consideration transferred; plus
-- The recognised amount of any non-controlling interests in the acquiree; plus
-- If the business combination is achieved in stages, the fair
value of the pre-existing equity interest in the acquiree; less
-- The net recognised amount (generally fair value) of the
identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is
recognised immediately in profit or loss.
The consideration transferred does not include amounts related
to the settlement of pre-existing relationships. Such amounts are
generally recognised in profit or loss.
Transaction costs, other than those associated with the issue of
debt or equity securities that the Group incurs in connection with
a business combination, are expensed as incurred.
Any contingent consideration payable is recognised at fair value
at the acquisition date. If an obligation to pay contingent
consideration that meets the definition of a financial instrument
is classified as equity, then it is not remeasured and settlement
is accounted for within equity. Otherwise, other contingent
consideration is remeasured at fair value at each reporting date
and subsequent changes in the fair value of the contingent
consideration are recognised in profit or loss.
When the acquisition of subsidiaries does not represent a
business, it is accounted for as an acquisition of a group of
assets and liabilities. The cost of the acquisition is allocated to
the assets and liabilities acquired based on their relative fair
values, and no goodwill or deferred tax is recognised.
(ii) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group
controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity.
The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control
commences until the date that control ceases. The accounting
policies of subsidiaries have been changed when necessary to align
them with the policies adopted by the Group. Losses applicable to
the non-controlling interests in a subsidiary are allocated to the
non-controlling interests even if doing so causes the
non-controlling interests to have a deficit balance.
Consolidated entities as at 31 December are as follows:
Name Country of Cost % of ownership
incorporation
2017 2016 2017 2016
(in thousands of USD,
except for % of ownership)
Praxifin Holdings Limited Cyprus 3 3 100.00% 100.00%
U.A. Terra Property
Management Limited Cyprus 3 3 100.00% 100.00%
Museo Holdings Limited Cyprus 3 3 100.00% 100.00%
Sunloop Co Limited Cyprus 3 3 100.00% 100.00%
Lacecap Limited Isle of Man 3 3 100.00% 100.00%
Beta Property Management
Limited Cyprus 3 3 100.00% 100.00%
Voyazh-Krym LLC Ukraine 363 363 100.00% 100.00%
PrJSC Livoberezhzhiainvest Ukraine 69 69 100.00% 100.00%
PrJSC Grandinvest Ukraine 69 69 100.00% 100.00%
Arricano Property Management
LLC Ukraine 5 5 100.00% 100.00%
PrJSC Ukrpangroup Ukraine 59 59 100.00% 100.00%
Prisma Alfa LLC Ukraine 4 4 100.00% 100.00%
Arricano Development
LLC Ukraine 9 9 100.00% 100.00%
Prisma Development LLC Ukraine 4 4 100.00% 100.00%
Arricano Real Estate
LLC Ukraine - - 100.00% 100.00%
Twible Holdings Limited Cyprus - - 100.00% 100.00%
Gelida Holding Limited Cyprus - - 100.00% 100.00%
Sapete Holdings Limited Cyprus - - 100.00% 100.00%
Wayfield Limited Cyprus - - 100.00% 100.00%
Comfort Market Luks
LLC Ukraine 40,666 40,666 100.00% 100.00%
Mezokred Holding LLC Ukraine 8,109 8,109 100.00% 100.00%
Vektor Capital LLC Ukraine 11,441 11,441 100.00% 100.00%
Budkhol LLC Ukraine 31,300 31,300 100.00% 100.00%
Budkholinvest LLC Ukraine - - 100.00% 100.00%
Green City LLC Russian Federation - - 100.00% 100.00%
RRE Development Services
OU Estonia - - 100.00% 100.00%
British Virgin
Coppersnow Limited Islands - - 100.00% 100.00%
On 31 July 2017, the Parent Company established Coppersnow
Limited, a company incorporated in British Virgin Islands for the
purpose of facilitating of management activities.
On 29 April 2016, the Group's subsidiary U.A. Terra Property
Management Limited acquired Green City LLC, the company
incorporated in the Russian Federation, from the entity under
common control for the purpose of facilitating operations and cash
flow management of the investment property.
On 5 October 2016, the Parent Company acquired RRE Development
Services OU, a company incorporated in Estonia, for the purpose of
facilitating of management activities.
These acquisitions were accounted for as an acquisition of
assets and liabilities as they do not meet the definition of a
business according to IFRS 3 Business Combinations.
No significant identifiable assets were acquired and no
significant liabilities were assumed upon these acquisitions.
Consideration transferred was also not significant. As part of the
above acquisitions, the rights to receive certain loans of the
acquired subsidiaries payable to entities under common control were
reassigned to the Group for a nominal amount of USD 1 per each loan
assignment. Accordingly, as at the date of each acquisition the
relative fair value of these loans receivable is considered to be
nil.
During the year ended 31 December 2016, the Group liquidated its
subsidiary Crimsonville Investments Limited, a company incorporated
in Cyprus. This subsidiary was dormant and had no significant
assets or liabilities.
(iii) Interests in equity-accounted investees
The Group's interests in equity-accounted investees comprise
interests in associates.
Associates are those entities in which the Group has significant
influence, but not control or joint control, over the financial and
operating policies. Significant influence is presumed to exist when
the Group holds between 20% and 50% of the voting power of another
entity.
Interest in associates is accounted for using the equity method
and is recognised initially at cost. The cost of the investment
includes transaction costs.
The consolidated financial statements include the Group's share
of the profit or loss and other comprehensive income of equity
accounted investees from the date that significant influence
commences until the date that significant influence ceases.
When the Group's share of losses exceeds its interest in an
equity-accounted investee, the carrying amount of that interest
including any long-term investments, is reduced to zero, and the
recognition of further losses is discontinued, except to the extent
that the Group has an obligation or has made payments on behalf of
the investee.
The listing of associates as at 31 December is as follows:
Name Country of % of ownership
incorporation
2017 2016
Filgate Credit Enterprises
Limited Cyprus 49.00% 49.00%
On 14 December 2016, the Parent Company acquired non-controlling
interest (49% of corporate rights) of Filgate Credit Enterprises
Limited from the company under common control incorporated in
Cyprus, in exchange for loan receivable from Weather Empire Limited
(refer to Note 5) as additional instrument in legal proceeding
regarding gaining the control over the Sky Mall. As part of the
above acquisition, the rights to receive certain loans payable by
Filgate Credit Enterprises Limited to entities under common control
in amount of USD 215,891 thousand were reassigned to the Group for
a nominal amount of USD 1. The fair value of these loans receivable
is considered to be nil at the date of reassignment (refer to Note
5).
In addition, a call share option agreement was concluded
granting an option to the Parent Company to purchase the remaining
51% of the corporate rights of Filgate Credit Enterprises Limited
within 5 years from the effective date. Exercise of the call option
depends on certain criteria and occurrence of certain condition,
and, as at the date of these consolidated financial statements are
authorised for issuance, the call option was not exercised by the
Group. Thus, the rights under the call option agreement were not
taken into consideration upon recognition of investment in Filgate
Credit Enterprises Limited and determination of the investment's
classification.
(iv) Transactions with entities under common control
Acquisitions from entities under common control
Business combinations arising from transfers of interests in
entities that are under the control of the shareholder that
controls the Group are accounted for using book value accounting.
Any result from the acquisition is recognised directly in
equity.
Disposals to entities under common control
Disposals of interests in subsidiaries to entities that are
under the control of the shareholder that controls the Group are
accounted for using book value accounting. Any result from the
disposal is recognised directly in equity.
(v) Loss of control
Upon the loss of control, the Group derecognises the carrying
amounts of the assets and liabilities of the subsidiary, any
non-controlling interests and the other components of equity
related to the subsidiary. Any surplus or deficit arising on the
loss of control is recognised in profit or loss. If the Group
retains any interest in the previous subsidiary, then such interest
is measured at fair value at the date that control is lost.
Subsequently it is accounted for as an equity-accounted investee or
as an available-for-sale financial asset depending on the level of
influence retained.
(vi) Transactions eliminated on consolidation
Intra-group balances, and any unrealised income and expenses
arising from intra-group transactions, are eliminated in preparing
these consolidated financial statements. Unrealised gains arising
from transactions with equity accounted investees are eliminated
against the investment to the extent of the Group's interest in the
investee. Unrealised losses are eliminated in the same way as
unrealised gains, but only to the extent that there is no evidence
of impairment.
(b) Foreign currency transactions and operations
(i) Foreign currency transactions
Transactions in foreign currencies are translated to the
respective functional currencies of Group entities at exchange
rates at the dates of the transactions. Monetary assets and
liabilities denominated in foreign currencies at the reporting date
are retranslated to the functional currency at the exchange rates
as at that date. The foreign currency gain or loss on monetary
items is the difference between amortised cost in the functional
currency at the beginning of the period, adjusted for effective
interest and payments during the period, and the amortised cost in
foreign currency translated at the exchange rate at the end of the
reporting period.
Non-monetary assets and liabilities that are measured at fair
value in a foreign currency are translated to the functional
currency at the exchange rate at the date that the fair value was
determined. Non-monetary items in a foreign currency that are
measured based on historical cost are translated using the exchange
rate at the date of the transaction.
Foreign currency differences arising on retranslation are
recognised in profit or loss, except for differences arising on the
retranslation of available-for-sale equity instruments which are
recognised in other comprehensive income.
Foreign currency transactions of Group entities located in
Ukraine
In preparation of these consolidated financial statements for
the retranslation of the operations and balances of Group entities
located in Ukraine denominated in foreign currencies, management
applied the National Bank of Ukraine's (NBU) official rates.
Management believes that application of these rates substantially
serves comparability purposes.
(ii) Foreign operations
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on acquisition, are
translated to USD at exchange rates at the reporting date. The
income and expenses of foreign operations are translated to USD at
exchange rates at the dates of the transactions.
Foreign currency differences are recognised in other
comprehensive income, and presented in the foreign currency
translation reserve in equity. However, if the operation is a
non-wholly-owned subsidiary, then the relevant proportionate share
of the translation difference is allocated to the non-controlling
interests. When a foreign operation is disposed of, such that
control, significant influence or joint control is lost, the
cumulative amount in the translation reserve related to that
foreign operation is reclassified to profit or loss as part of the
gain or loss on disposal. When the Group disposes of only part of
its interest in a subsidiary that includes a foreign operation
while retaining control, the relevant proportion of the cumulative
amount is reattributed to non-controlling interests. When the Group
disposes of only part of its investment in an associate or joint
venture that includes a foreign operation while retaining
significant influence or joint control, the relevant proportion of
the cumulative amount is reclassified to profit or loss.
When the settlement of a monetary item receivable from or
payable to a foreign operation is neither planned nor likely in the
foreseeable future, foreign exchange gains and losses arising from
such a monetary item are considered to form part of a net
investment in a foreign operation and are recognised in other
comprehensive income, and presented in the foreign currency
translation difference reserve in equity.
(c) Financial instruments
The Group classifies non-derivative financial assets into the
following categories: loans and receivables and available-for-sale
financial assets.
The Group classifies non-derivative financial liabilities into
the other financial liabilities category.
(i) Non-derivative financial assets and financial liabilities - recognition and derecognition
The Group initially recognises loans and receivables on the date
that they are originated. All other financial assets and financial
liabilities are recognised initially on the trade date at which the
Group becomes a party to the contractual provisions of the
instrument.
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the
rights to receive the contractual cash flows on the financial asset
in a transaction in which substantially all the risks and rewards
of ownership of the financial asset are transferred. Any interest
in transferred financial assets that is created or retained by the
Group is recognised as a separate asset or liability.
The Group derecognises a financial liability when its
contractual obligations are discharged or cancelled or expire.
Financial assets and liabilities are offset and the net amount
presented in the consolidated statement of financial position when,
and only when, the Group has a legal right to offset the amounts
and intends either to settle on a net basis or to realise the asset
and settle the liability simultaneously. The Group currently has a
legally enforceable right to set off if that right is not
contingent on a future event and enforceable both in the normal
course of business and in the event of default, insolvency or
bankruptcy of the Group and all counterparties.
(ii) Non-derivative financial assets and financial liabilities - measurement
Loans and receivables
Loans and receivables are a category of financial assets with
fixed or determinable payments that are not quoted in an active
market. Such assets are recognised initially at fair value plus any
directly attributable transaction costs. Subsequent to initial
recognition loans and receivables are measured at amortised cost
using the effective interest method, less any impairment losses
(refer to Note 3(i)(i)).
Loans and receivables comprise the following classes of
financial assets: trade and other receivables as presented in Note
7, loans receivable as presented in Note 5 and cash and cash
equivalents as presented in Note 9.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, call deposits
and highly liquid investments with maturities of three months or
less from the acquisition date that are subject to insignificant
risk of changes in their fair value.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial
assets that are designated as available-for-sale or are not
classified in any of the other categories of financial assets. Such
assets are recognised initially at fair value plus any directly
attributable transaction costs. Subsequent to initial recognition,
they are measured at fair value and changes therein, other than
impairment losses (refer to Note 3(i)(i)), are recognised in other
comprehensive income and presented within equity in the fair value
reserve. When an investment is derecognised or impaired, the
cumulative gain or loss in equity is reclassified to profit or
loss. Unquoted equity instruments whose fair value cannot be
reliably measured are carried at cost.
Available-for-sale financial assets comprise equity
securities.
(iii) Non-derivative financial liabilities - measurement
The Group classifies non-derivative financial liabilities into
the other financial liabilities category. Such financial
liabilities are recognised initially at fair value less any
directly attributable transaction costs. Subsequent to initial
recognition, these financial liabilities are measured at amortised
cost using the effective interest method.
Other financial liabilities comprise loans and borrowings as
presented in Note 12, finance lease liability as presented in Note
13, trade and other payables as presented in Note 14 and other
liabilities as presented in Note 16.
(iv) Capital and reserves
Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to issue of ordinary shares are recognised as
a deduction from equity, net of any tax effects.
Share premium
Share premium reserves include amounts that were created due to
the issue of share capital at a value price greater than the
nominal.
Non-reciprocal shareholders contribution
Non-reciprocal shareholders contribution reserve includes
contributions made by the shareholders directly in the reserves.
The shareholders do not have any rights to these contributions
which are distributable at the discretion of the Board of
Directors, subject to the shareholders' approval.
Retained earnings (accumulated deficit)
Retained earnings (accumulated deficit) include accumulated
profits and losses incurred by the Group.
Other reserves
Other reserves comprise the effect of acquisition and disposal
of subsidiaries under common control, change in non-controlling
interest in these subsidiaries and the effect of forfeiture of
shares.
Foreign currency translation differences
Foreign currency translation differences comprise foreign
currency differences arising from the translation of the financial
statements of foreign operations and foreign exchange gains and
losses from monetary items that form part of the net investment in
the foreign operation.
(d) Investment properties
Investment properties are those that are held either to earn
rental income or for capital appreciation or for both, but not for
sale in the ordinary course of business, use in production or
supply of goods or services or for administrative purposes.
Investment properties principally comprise freehold land,
leasehold land and investment properties held for rental income
earning or future redevelopment.
Leasehold of land under operating lease is classified and
accounted for as an investment property when the definition of
investment property is met. Under investment property accounting,
the right to use the land is measured at fair value and the
obligation to pay rentals is accounted for as a finance lease.
(i) Initial measurement and recognition
Investment properties are measured initially at cost, including
related acquisition costs. Cost includes expenditure that is
directly attributable to the acquisition of the investment
property. The cost of self-constructed investment property includes
the cost of materials and direct labour, any other costs directly
attributable to bringing the investment property to a working
condition for their intended use and capitalised borrowing
costs.
If the Group uses part of the property for its own use, and part
to earn rentals or for capital appreciation, and the portions can
be sold or leased out separately, they are accounted for
separately. Therefore the part that is rented out is investment
property. If the portions cannot be sold or leased out separately,
the property is investment property only if the company-occupied
portion is insignificant.
(ii) Subsequent measurement
Subsequent to initial recognition investment properties are
stated at fair value. Any gain or loss arising from a change in
fair value is included in profit or loss in the period in which it
arises.
When the Group begins to redevelop an existing investment
property for continued future use as investment property, the
property remains an investment property, which is measured at fair
value, and is not reclassified to property and equipment during the
redevelopment.
When the use of a property changes such that it is reclassified
as property, plant and equipment, its fair value at the date of
reclassification becomes its cost for subsequent accounting.
Investment properties are derecognised on disposal or when they
are permanently withdrawn from use and no future economic benefits
are expected from their disposal. The gain or loss on disposal is
calculated as the difference between the net disposal proceeds and
the carrying amount of the asset and is recognised as gain or loss
in profit or loss.
It is the Group's policy that an external, independent valuation
company, having an appropriate recognised professional
qualification and recent experience in the location and category of
property being appraised, values the portfolio as at each reporting
date. The fair value is the amount for which a property could be
exchanged on the date of valuation between a willing buyer and a
willing seller in an arm's length transaction. The valuation is
prepared in accordance with International Valuation Standards
published by the International Valuation Standards Council.
(iii) Property under development (construction)
Property that is being constructed or developed for future use
as an investment property and for which it is not possible to
reliably determine fair value is accounted for as an investment
property that is stated at cost until construction or development
is complete, or until it becomes possible to reliably determine its
fair value. When construction is performed on land previously
classified as an investment property and measured at fair value,
such land continues to be accounted at fair value throughout the
construction phase.
(e) Property and equipment
(i) Recognition and measurement
Items of property and equipment are measured at cost less
accumulated depreciation and impairment losses.
Cost includes expenditures that are directly attributable to the
acquisition of the asset. The cost of self-constructed assets
includes the cost of materials and direct labor, any other costs
directly attributable to bringing the asset to a working condition
for its intended use, and the costs of dismantling and removing the
items and restoring the site on which they are located. Purchased
software that is integral to the functionality of the related
equipment is capitalised as part of that equipment.
When parts of an item of property and equipment have different
useful lives, they are accounted for as separate items (major
components) of property and equipment.
The gain or loss on disposal of an item of property and
equipment is determined by comparing the proceeds from disposal
with the carrying amount of property and equipment, and is
recognised net within other income/other operating expenses in
profit or loss.
(ii) Reclassification to investment property
When the use of a property changes from owner-occupied to
investment property, the property is re-measured to fair value and
reclassified to investment property. Any gain arising on
re-measurement is recognised in profit or loss to the extent that
it reverses a previous impairment loss on the specific property,
with any remaining gain recognised in other comprehensive income
and presented in the revaluation reserve in equity. Any loss is
recognised immediately in profit or loss.
(iii) Subsequent costs
The cost of replacing part of an item of property and equipment
is recognised in the carrying amount of the item if it is probable
that the future economic benefits embodied within the part will
flow to the Group and its cost can be measured reliably. The costs
of the day-to-day servicing of property and equipment are
recognised in profit or loss as incurred.
(iv) Depreciation
Items of property and equipment are depreciated from the date
that they are installed and are ready for use, or in respect of
internally constructed assets, from the date that the asset is
completed and ready for use. Depreciation is based on the cost of
an asset less its residual value.
Depreciation is recognised in profit or loss on a straight-line
basis over the estimated useful lives of each part of an item of
property and equipment. Leased assets are depreciated over the
shorter of the lease term and their useful lives unless it is
reasonably certain that the Group will obtain ownership by the end
of the lease term. Land is not depreciated.
The estimated useful lives for the current and comparative
periods are as follows:
-- vehicles and equipment 5 years
-- fixture and fittings 2.5 - 5 years
Depreciation methods, useful lives and residual values are
reviewed at each financial year end and adjusted if
appropriate.
(f) Intangible assets
(i) Recognition and measurement
Intangible assets that are acquired by the Group, which have
finite useful lives, are measured at cost less accumulated
amortisation and accumulated impairment losses.
(ii) Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the
future economic benefits embodied in the specific asset to which it
relates. All other expenditure, including expenditure on internally
generated goodwill and brands, is recognised in profit or loss as
incurred.
(iii) Amortisation
Amortisation is calculated over the cost of the asset, or other
amount substituted for cost, less its residual value.
Amortisation is recognised in profit or loss on a straight-line
basis over the estimated useful lives of intangible assets, other
than goodwill, from the date that they are available for use since
this most closely reflects the expected pattern of consumption of
future economic benefits embodied in the asset. The estimated
useful lives for the current and comparative periods are as
follows:
-- software 3-5 years
Amortisation methods, useful lives and residual values are
reviewed at each financial year end and adjusted if
appropriate.
(g) Inventories
Inventories are measured at the lower of cost and net realisable
value. The cost of inventories is based on the first-in first-out
principle, and includes expenditure incurred in acquiring the
inventories and bringing them to their existing location and
condition.
Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs of completion
and selling expenses.
(h) Assets classified as held for sale
Non-current assets, or disposal groups comprising assets and
liabilities, that are expected to be recovered primarily through
sale rather than through continuing use, are classified as held for
sale.
Such assets, or disposal group, are measured at the lower of
their carrying amount and fair value less cost to sell. Any
impairment loss on a disposal group is allocated first to goodwill,
and then to the remaining assets and liabilities on pro rata basis,
except that no loss is allocated to inventories, financial assets,
deferred tax assets or investment property, which continue to be
measured in accordance with the Group's other accounting policies.
Impairment losses on initial classification as held for sale and
subsequent gains or losses on remeasurement are recognised in
profit or loss. Gains are not recognised in excess of any
cumulative impairment loss.
Intangible assets and property and equipment once classified as
held for sale are not amortised or depreciated.
(i) Impairment
(i) Non-derivative financial assets
A financial asset not carried at fair value through profit or
loss is assessed at each reporting date to determine whether there
is any objective evidence that it is impaired. A financial asset is
impaired if objective evidence indicates that a loss event has
occurred after the initial recognition of the asset, and that the
loss event had a negative effect on the estimated future cash flows
of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired can
include default or delinquency by a debtor, restructuring of an
amount due to the Group on terms that the Group would not consider
otherwise, indications that a debtor or issuer will enter
bankruptcy, adverse changes in the payment status of borrowers or
issuers in the Group, economic conditions that correlate with
defaults, the disappearance of an active market for a security or
observable data indicating that there is measurable decrease in
expected cash flows from a group of financial assets. In addition,
for an investment in an equity security, a significant or prolonged
decline in its fair value below its cost is objective evidence of
impairment.
Financial assets measured at amortised cost
The Group considers evidence of impairment for financial assets
measured at amortised cost at both a specific asset and collective
level. All individually significant assets are assessed for
specific impairment. Those found not to be specifically impaired
are then collectively assessed for any impairment that has been
incurred but not yet identified. Assets that are not individually
significant are collectively assessed for impairment by grouping
together assets with similar risk characteristics.
In assessing collective impairment the Group uses historical
trends of the probability of default, timing of recoveries and the
amount of loss incurred, adjusted for management's judgment as to
whether current economic and credit conditions are such that the
actual losses are likely to be greater or less than suggested by
historical trends.
An impairment loss is calculated as the difference between an
asset's carrying amount, and the present value of the estimated
future cash flows discounted at the asset's original effective
interest rate. Losses are recognised in profit or loss and
reflected in an allowance account. When the Group believes that
there are no realistic prospects of recovery of the asset, the
relevant amounts are written off. Interest on the impaired asset
continues to be recognised through the unwinding of the discount.
When a subsequent event causes the amount of impairment loss to
decrease and the decrease can be related objectively to an event
occurring after the impairment was recognised, the decrease in
impairment loss is reversed through profit or loss.
Available-for-sale financial assets
Impairment losses on available-for-sale financial assets are
recognised by reclassifying the losses accumulated in the fair
value reserve in equity, to profit or loss. The cumulative loss
that is reclassified from equity to profit or loss is the
difference between the acquisition cost, net of any principal
repayment and amortisation, and the current fair value, less any
impairment loss previously recognised in profit or loss. Changes in
impairment provisions attributable to application of the effective
interest method are reflected as a component of interest income.
If, in a subsequent period, the fair value of an impaired
available-for-sale debt security increases and the increase can be
related objectively to an event occurring after the impairment loss
was recognised in profit or loss, then the impairment loss is
reversed, with the amount of the reversal recognised in profit or
loss. However, any subsequent recovery in the fair value of an
impaired available-for-sale equity security is recognised in other
comprehensive income.
(ii) Non-financial assets
The carrying amounts of non-financial assets, other than
investment property, deferred tax asset and inventory are reviewed
at each reporting date to determine whether there is any indication
of impairment. If any such indication exists then the asset's
recoverable amount is estimated. For goodwill and intangible assets
that have indefinite lives or that are not yet available for use,
the recoverable amount is estimated each year at the same time.
For the purpose of impairment testing, assets that cannot be
tested individually are grouped together into the smallest group of
assets that generates cash inflows from continuing use that are
largely independent of the cash inflows of other assets or
cash-generating unit (CGU). Subject to an operating segment ceiling
test, for the purposes of goodwill impairment testing, CGUs to
which goodwill has been allocated are aggregated so that the level
at which impairment testing is performed reflects the lowest level
at which goodwill is monitored for internal reporting purposes.
Goodwill acquired in a business combination is allocated to groups
of CGUs that are expected to benefit from the synergies of the
combination.
The Group's corporate assets do not generate separate cash
inflows and are utilised by more than one CGU. Corporate assets are
allocated to CGUs on a reasonable and consistent basis and tested
for impairment as part of the testing of the CGU to which the
corporate asset is allocated.
The recoverable amount of an asset or CGU is the greater of its
value in use and its fair value less costs to sell. In assessing
value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks
specific to the asset or CGU.
An impairment loss is recognised if the carrying amount of an
asset or its CGU exceeds its estimated recoverable amount.
Impairment losses are recognised in profit or loss. Impairment
losses recognised in respect of CGUs are allocated first to reduce
the carrying amount of any goodwill allocated to the CGU (group of
CGUs) and then to reduce the carrying amount of the other assets in
the CGU (group of CGUs) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In
respect of other assets, impairment losses recognised in prior
periods are assessed at each reporting date for any indications
that the loss has decreased or no longer exists. An impairment loss
is reversed if there has been a change in the estimates used to
determine the recoverable amount. An impairment loss is reversed
only to the extent that the asset's carrying amount does not exceed
the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been
recognised.
(j) Provisions
A provision is recognised if, as a result of a past event, the
Group has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability. The
unwinding of the discount is recognised as finance cost.
(k) Revenue
(i) Rental income from investment property
Rental income from investment property is recognised in profit
or loss on a straight-line basis over the term of the lease.
(ii) Sale of services
Revenue from services rendered is recognised in proportion to
the stage of completion of the transaction at the reporting date.
The stage of completion is assessed by reference to surveys of work
performed.
(l) Leases
(i) Determining whether an arrangement contains a lease
At inception of an arrangement, the Group determines whether
such an arrangement is or contains a lease. This will be the case
if the fulfilment of the arrangement is dependent on the use of a
specific asset and the arrangement conveys a right to use the
asset.
At inception or upon reassessment of the arrangement, the Group
separates payments and other consideration required by such an
arrangement into those for the lease and those for other elements
on the basis of their relative fair values. If the Group concludes
for a finance lease that it is impracticable to separate the
payments reliably, then an asset and a liability are recognised at
an amount equal to the fair value of the underlying asset.
Subsequently the liability is reduced as payments are made and an
imputed finance charge on the liability is recognised using the
Group's incremental borrowing rate.
(ii) Leased assets
Assets held by the Group under leases that transfer to the Group
substantially all the risks and rewards of ownership are classified
as finance leases. Upon initial recognition the leased asset is
measured at an amount equal to the lower of its fair value and the
present value of the minimum lease payments. Subsequent to initial
recognition, the asset is accounted for in accordance with the
accounting policy applicable to that asset.
Other leases are operating leases and the leased assets are not
recognised in the statement of financial position.
(iii) Lease payments
Payments made under operating leases are recognised in profit or
loss on a straight-line basis over the term of the lease. Lease
incentives received are recognised as an integral part of the total
lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned
between the finance cost and the reduction of the outstanding
liability. The finance cost is allocated to each period during the
lease term so as to produce a constant periodic rate of interest on
the remaining balance of the liability.
Contingent lease payments are accounted for by revising the
minimum lease payments over the remaining term of the lease when
the contingency no longer exists and the lease adjustment is
known.
(m) Finance income and costs
Finance income comprises interest income on funds invested,
foreign currency gains, income from derecognition of finance lease
liabilities and gains on initial recognition of financial
liabilities at fair value. Interest income is recognised as it
accrues in profit or loss, using the effective interest method.
Finance costs comprise interest expense on borrowings and on
deferred consideration, foreign exchange losses, costs from
recognition of finance lease liabilities and impairment of
available-for-sale financial assets.
Borrowing costs that are not directly attributable to the
acquisition, construction or production of a qualifying asset are
recognised in profit or loss using the effective interest
method.
Foreign currency gains and losses arising on loans receivable
and borrowings are reported on a net basis as either finance income
or finance cost.
(n) Income tax expense
Income tax expense comprises current and deferred tax. Current
tax and deferred tax are recognised in profit or loss except to the
extent that it relates to a business combination, or items
recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the
taxable income or loss for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to
tax payable in respect of previous years.
Deferred tax is recognised in respect of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation
purposes. Deferred tax is not recognised for:
-- temporary differences on the initial recognition of assets or
liabilities in a transaction that is not a business combination and
that affects neither accounting nor taxable profit or loss;
-- temporary differences related to investments in subsidiaries
and jointly controlled entities to the extent that it is probable
that they will not reverse in the foreseeable future; and
-- taxable temporary differences arising on the initial recognition of goodwill.
The measurement of deferred tax reflects the tax consequences
that would follow the manner in which the Group expects, at the end
of the reporting period, to recover or settle the carrying amount
of its assets and liabilities. For this purpose, the carrying
amount of investment property measured at fair value is presumed to
be recovered through sale, and the Group has not rebutted this
presumption.
Deferred tax is measured at the tax rates that are expected to
be applied to the temporary differences when they reverse, based on
the laws that have been enacted or substantively enacted by the
reporting date.
In determining the amount of current and deferred tax the Group
takes into account the impact of uncertain tax positions and
whether additional taxes, penalties and late-payment interest may
be due. The Group believes that its accruals for tax liabilities
are adequate for all open tax years based on its assessment of many
factors, including interpretations of tax law and prior experience.
This assessment relies on estimates and assumptions and may involve
a series of judgments about future events. New information may
become available that causes the Group to change its judgment
regarding the adequacy of existing tax liabilities; such changes to
tax liabilities will impact the tax expense in the period that such
a determination is made.
Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset current tax assets and
liabilities, and they relate to income taxes levied by the same tax
authority on the same taxable entity, or on different tax entities,
but they intend to settle current tax liabilities and assets on a
net basis or their tax assets and liabilities will be realised
simultaneously.
A deferred tax asset is recognised for unused tax losses, tax
credits and deductible temporary differences, to the extent that it
is probable that future taxable profits will be available against
which they can be utilised. Future taxable profits are determined
based on the reversal of relevant taxable temporary differences. If
the amount of taxable temporary differences is insufficient to
recognise a deferred tax asset in full, then future taxable
profits, adjusted for reversals of existing temporary differences,
are considered, based on the business plans for individual
subsidiaries in the Group. Deferred tax assets are reviewed at each
reporting date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realised; such
reductions are reversed when the probability of future taxable
profits improves.
(o) Earnings per share
The Group presents basic and diluted earnings per share ("EPS")
data for its ordinary shares. Basic EPS is calculated by dividing
the profit or loss attributable to ordinary shareholders of the
Company by the weighted average number of ordinary shares
outstanding during the period, adjusted for own shares held.
As at 31 December 2017 and 2016, there were no potential
dilutive ordinary shares.
(p) Segment reporting
An operating segment is a component of the Group that engages in
business activities from which it may earn revenues and incur
expenses, including revenues and expenses that relate to
transactions with any of the Group's other components. Management
believes that during the current year and prior year, the Group
operated in and was managed as one operating segment, being
property investment, with investment properties located in Ukraine
and the Republic of Crimea.
The Board of Directors, which is considered to be the chief
operating decision maker of the Group for IFRS 8 Operating Segments
purposes, receives semi-annually management accounts that are
prepared in accordance with IFRSs as adopted by the EU and which
present aggregated performance of all the Group's investment
properties.
(q) New standards and interpretations not yet adopted
A number of new Standards, amendments to Standards and
Interpretations are not yet effective as of 31 December 2017 and
have not been applied in preparing these consolidated financial
statements. Of these pronouncements, potentially the following will
have an impact on the Group's operations. Management plans to adopt
these pronouncements when they become effective.
Estimated impact of the adoption of IFRS 9 and IFRS 15
The Group is required to adopt IFRS 9 "Financial Instruments:
Classification and Measurement" and IFRS 15 "Revenue from Contracts
with Customers" from 1 January 2018. The estimated impact of the
adoption of these standards on the Group's consolidated financial
statements as at 1 January 2018 is based on assessments undertaken
to date and is summarised below. The actual impacts of adopting the
standards at 1 January 2018 may change because the new accounting
policies are subject to change until the Group presents its first
consolidated financial statements that include the date of initial
application of these standards.
IFRS 9 "Financial Instruments: Classification and Measurement".
IFRS 9, published in July 2014, replaces the existing guidance in
IAS 39 "Financial Instruments: Recognition and Measurement" and
sets out requirements for classification and measurement of
financial instruments, impairment of financial assets and
accounting for hedging.
Classification and measurement
IFRS 9 contains three principal classification categories for
financial assets: measured at amortised cost, fair value through
other comprehensive income and fair value through profit or loss.
IFRS 9 contains a new classification and measurement approach for
financial assets that reflects the business model in which assets
are managed and their cash flow characteristics. The standard
eliminates the existing IAS 39 categories of held-to-maturity,
loans and receivables and available-for-sale.
Under IFRS 9, derivatives embedded in contracts where the host
is a financial asset in the scope of the standard are never
bifurcated. Instead, the hybrid financial instrument as a whole is
assessed for classification. Investments in equity instruments are
measured at fair value.
IFRS 9 largely retains the existing requirements in IAS 39 for
the classification of financial liabilities.
Based on its assessment, the Group believes that the new
classification requirements will not have significant impact on
accounting of the Group's financial assets and financial
liabilities.
Impairment
IFRS 9 replaces the 'incurred loss' model in IAS 39 with a
forward-looking 'expected credit loss' (ECL) model. This will
require considerable judgement about how changes in economic
factors affect ECLs, which will be determined on a
probability-weighted basis.
The new impairment model will apply to financial assets measured
at amortised cost or FVOCI, accounts receivable under lease
agreements, certain lending commitments and financial guarantee
contracts. The new impairment model generally requires recognition
of credit losses for all financial assets, even if they are newly
created or acquired.
Under IFRS 9, loss allowances will be measured on either of the
following bases:
-- 12-month ECLs. These are ECLs that result from possible
default events within the 12 months after the reporting date;
and
-- lifetime ECLs. These are ECLs that result from all possible
default events over the expected life of a financial
instrument.
Lifetime ECL measurement applies if the credit risk of a
financial asset at the reporting date has increased significantly
since initial recognition and 12-month ECL measurement applies if
it has not. An entity may determine that a financial asset's credit
risk has not increased significantly if the asset has low credit
risk at the reporting date. However, lifetime ECL measurement
always applies for trade receivables and contract assets without a
significant financing component.
The Group has conducted a preliminary assessment of expected
credit losses on financial assets in accordance with IFRS 9 and
concluded that the additional impairment losses to be recognised by
the Group in connection with the adoption of the new standard will
not have significant effect on the Group's financial results and
net assets.
Measurement of the impairment losses will be carried out as
follows:
-- for loans receivable and trade and other receivables,
expected credit losses will be calculated on the basis of prior
periods loss ratios, taking into account the effect of forecasted
macroeconomic indicators for the period of existence of accounts
receivable;
-- for cash and cash equivalents, expected credit losses will be
calculated on the basis of external credit ratings and statistical
information on default and repayment for similar financial
instruments.
Disclosures
IFRS 9 will require extensive new disclosures, in particular
about credit risk and expected credit losses. The Group's
assessment included an analysis to identify data gaps against
current processes and the Group is in the process of implementing
the system and controls changes that it believes will be necessary
to capture the required data.
Transition
The classification and measurement and impairment requirements
are generally applied retrospectively (with some exemptions) by
adjusting the opening retained earnings and reserves at the date of
initial application, with no requirement to restate comparative
periods.
The Group will take advantage of the exemption allowing it not
to restate comparative information for prior periods with respect
to classification and measurement (including impairment) changes.
Differences in the carrying amounts of financial assets and
financial liabilities resulting from the adoption of IFRS 9
generally will be recognised in retained earnings and reserves as
at 1 January 2018.
IFRS 15 "Revenue from Contracts with Customers". IFRS 15
establishes a comprehensive framework for determining whether, how
much and when revenue is recognised. It replaces existing revenue
recognition guidance, including IAS 18 Revenue, IAS 11 Construction
Contracts and IFRIC 13 Customer Loyalty Programmes. The core
principle of the new standard is that an entity recognises revenue
to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The
new standard results in enhanced disclosures about revenue,
provides guidance for transactions that were not previously
addressed comprehensively and improves guidance for
multiple-element arrangements. Since the revenue of the Group is
mainly represented by the rental income in accordance with IAS 17
Leases and the amount of revenue from other services rendered is
not significant, the expected impact of implementation is
considered to be not significant.
IFRS 16 Leases. IFRS 16 replaces existing leases guidance
including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement
contains a Lease, SIC-15 Operating Leases - Incentives and SIC-27
Evaluating the Substance of Transactions Involving the Legal Form
of a Lease.
The standard is effective for annual periods beginning on or
after 1 January 2019. Early adoption is permitted for entities that
apply IFRS 15 at or before the date of initial application of IFRS
16.
IFRS 16 introduces a single, on-balance sheet lease accounting
model for lessees. A lessee recognises a right-of-use asset
representing its right to use the underlying asset and a lease
liability representing its obligation to make lease payments. There
are recognition exemptions for short-term leases and leases of low
value items. Lessor accounting remains similar to the current
standard - i.e. lessors continue to classify leases as finance or
operating leases.
The Group has not yet analysed the likely impact of the new
Standard on its financial position or performance.
Transition
As a lessee, the Group can either apply the standard using
a:
-- retrospective approach; or
-- modified retrospective approach with optional practical expedients.
The lessee applies the election consistently to all of its
leases.
The Group plans to apply IFRS 16 initially on 1 January 2019,
using the modified retrospective approach. Therefore, the
cumulative effect of adopting IFRS 16 will be recognised as an
adjustment to the opening balance of retained earnings at 1 January
2019, with no restatement of comparative information.
When applying the modified retrospective approach to leases
previously classified as operating leases under IAS 17, the lessee
can elect, on a lease-by-lease basis, whether to apply a number of
practical expedients on transition. The Group is assessing the
potential impact of using these practical expedients.
The Group is not required to make any adjustments for leases in
which it is a lessor except where it is an intermediate lessor in a
sub-lease.
Various Improvements to IFRSs. Various Improvements to IFRSs
have been dealt with on a standard-by-standard basis. All
amendments, which result in accounting changes for presentation,
recognition or measurement purposes, will come into effect not
earlier than 1 January 2018. The Group has not yet analysed the
likely impact of the improvements on its financial position or
performance.
4 Investment property
(a) Movements in investment property
Movements in investment property for the years ended 31 December
are as follows:
Prepayment for
Land held on Land held on investment Property under
freehold leasehold Buildings property construction Total
(in thousands of
USD)
At 1 January 2016 6,000 44,722 99,260 23 10,305 160,310
Additions - 954 - - 994 1,948
Disposals - (1,173) - - - (1,173)
Fair value gains
on
revaluation (985) 3,920 24,993 - - 27,928
Currency
translation
adjustment 785 (5,369) (7,553) (3) (1,210) (13,350)
At 31 December
2016/
1 January 2017 5,800 43,054 116,700 20 10,089 175,663
Additions - 396 - - 978 1,374
Disposals - - - (3) (634) (637)
Fair value gains
on
revaluation 276 4,348 43,249 - - 47,873
Currency
translation
adjustment 224 (1,251) (1,659) (1) (321) (3,008)
At 31 December
2017 6,300 46,547 158,290 16 10,112 221,265
During the year ended 31 December 2017, acquisition of a land
plot held on leasehold of USD 396 thousand occurred through finance
lease (2016: acquisition and disposal of a land plot held on
leasehold of USD 954 thousand and USD 1,173 thousand, respectively)
(refer to Note 13).
As at 31 December 2017, in connection with loans and borrowings,
the Group pledged as security investment property with a carrying
value of USD 117,790 thousand (2016: USD 102,337 thousand) (refer
to Note 23(a)).
During the year ended 31 December 2017, disposal of property
under construction is represented by reversal of capitalised
charges in respect of an agreement on customer share participation
in the creation and development of engineering, transport and
social infrastructure of Odesa due to win of the related court case
(refer to Note 23(d)(iv)).
During the year ended 31 December 2017, 79% of total
construction services were purchased from one counterparty (2016:
53% of total construction services).
(b) Determination of fair value
The fair value measurement, developed for determination of fair
value of the Group's investment property, is categorised within
Level 3 category due to significance of unobservable inputs to the
entire measurement, except for certain land held on the leasehold
which is not associated with completed property and is therefore
categorised within Level 2 category. As at 31 December 2017, the
fair value of investment property categorised within the Level 2
category is USD 29,100 thousand (2016: USD 26,800 thousand). To
assist with the estimation of the fair value of the Group's
investment property as at 31 December 2017, which is represented by
the shopping centres, management engaged registered independent
appraiser Expandia LLC, part of the CBRE Affiliate network, having
a recognised professional qualification and recent experience in
the location and categories of the projects being valued.
The fair values are based on the estimated rental value of
property. A market yield is applied to the estimated rental value
to arrive at the gross property valuation. When actual rents differ
materially from the estimated rental value, adjustments are made to
reflect actual rents. The valuation is prepared in accordance with
the practice standards contained in the Appraisal and Valuation
Standards published by the Royal Institution of Chartered Surveyors
("RICS") or in accordance with International Valuation Standards
published by the International Valuation Standards Council.
Valuations reflect, when appropriate, the type of tenants
actually in occupation or responsible for meeting lease commitments
or likely to be in occupation after letting vacant accommodation,
the allocation of maintenance and insurance responsibilities
between the Group and the lessee, and the remaining economic life
of the property. When rent reviews or lease renewals are pending
with anticipated reversionary increases, it is assumed that all
notices and, when appropriate, counter-notices, have been served
validly and within the appropriate time.
Land parcels are valued based on market prices for similar
properties.
As at 31 December 2017, the estimation of fair value is made
using a net present value calculation based on certain assumptions,
the most important of which are as follows:
-- monthly rental rates, ranging from USD 2.00 to USD 150.00 per
sq.m., which are based on contractual and market rental rates,
adjusted for discounts or fixation of rental rates in Ukrainian
hryvnia at a pre-agreed exchange rate, occupancy rates ranging from
95.4% to 100.0%, and discount rate ranging from 14.0% to 22.5%
p.a., which represent key unobservable inputs for determination of
fair value;
-- all relevant licenses and permits, to the extent not yet
received, will be obtained, in accordance with the timetables as
set out in the investment project plans.
As at 31 December 2016, the estimation of fair value is made
using a net present value calculation based on certain assumptions,
the most important of which are as follows:
-- monthly rental rates, ranging from USD 1.00 to USD 131.40 per
sq.m., which are based on contractual and market rental rates,
adjusted for discounts or fixation of rental rates in Ukrainian
hryvnia at a pre-agreed exchange rate, occupancy rates ranging from
97.6% to 100.0%, and discount rates ranging from 18.4% to 24.4%
p.a., which represent key unobservable inputs for determination of
fair value;
-- all relevant licenses and permits, to the extent not yet
received, will be obtained, in accordance with the timetables as
set out in the investment project plans.
The reconciliation from the opening balances to the closing
balances for Level 3 fair value measurements is presented in Note
4(a).
As at 31 December 2017, the fair value of investment property
denominated in functional currency amounted to UAH 4,120,268
thousand and RUB 2,695,689 thousand (2016: UAH 4,115,139 thousand
and RUB 1,475,176 thousand). The increase in fair value of
investment property mainly results from increased rental rates
invoiced in local currency due to the increase in the exchange
rates applied to the USD equivalent of rental rates fixed in the
rental contracts.
Sensitivity at the date of valuation
The valuation model used to assess the fair value of investment
property as at 31 December 2017 is particularly sensitive to
unobservable inputs in the following areas:
-- If rental rates are 1% less than those used in valuation
models, the fair value of investment properties would be USD 1,738
thousand (2016: USD 1,309 thousand) lower. If rental rates are 1%
higher, then the fair value of investment properties would be USD
1,738 thousand (2016: USD 1,309 thousand) higher.
-- If the discount rate applied is 1% higher than that used in
the valuation models, the fair value of investment properties would
be USD 11,973 thousand (2016: USD 8,505 thousand) lower. If the
discount rate is 1% less, then the fair value of investment
properties would be USD 13,907 thousand (2016: USD 9,783 thousand)
higher.
-- If the occupancy rate is 1% higher than that used in the
valuation model for shopping center "Prospect" and is assumed to be
100% for other shopping centers, the fair value of investment
properties would be USD 668 thousand higher (2016: if the occupancy
rates are 1% higher than that used in the valuation or are assumed
to be 100% for the shopping center in Kyiv, the fair value of
investment properties would be USD 956 thousand higher). If the
occupancy rates are 1% less, then the fair value of investment
properties would be USD 1,539 thousand (2016: USD 1,154 thousand)
lower.
5 Loans receivable
Loans receivable as at 31 December are as follows:
2017 2016
(in thousands of USD)
Current assets
Short-term loans receivable due from related parties 8,491 8,682
Accrued interest receivable due from related parties 2,178 1,865
Short-term loans receivable due from third parties 296 305
Impairment of loans receivable due from related parties (10,669) (10,547)
296 305
Loans receivable from related parties
In July 2011 the Parent Company granted a loan to Weather Empire
Limited with the purpose of buying 1,077 shares in the Parent
Company's share capital from Retail Real Estate S.A.
In July 2013 the shares of Weather Empire Limited were
transferred to the Parent Company's major shareholders pro-rata to
their ownership rights due to non-exercising of conversion rights
by ELQ Investors II Ltd and later on or about 12 August 2013 were
transferred in full to Retail Real Estate S.A.
As at 31 December 2015, this loan was overdue and management
considered it to be non-recoverable. In this respect management has
proceeded with the full impairment of that loan receivable of USD
39,761 thousand, including accrued interest of USD 9,761 thousand,
as at 31 December 2015.
On 14 December 2016, the Group acquired 49% of shares in Filgate
Credit Enterprises Limited (refer to Note 3(a)(iii)). Due to the
net liability position of Filgate Credit Enterprise Limited as at
the date of acquisition, this investment is considered to be fully
impaired. The purchase price was set-off in full against the loan
receivable from Weather Empire Limited of USD 39,761 thousand that
was fully impaired during the prior periods. Following the set-off,
the loans receivable along with respective allowance for impairment
were derecognised.
As part of the above acquisition, the rights to receive certain
loans payable by Filgate Credit Enterprises Limited to entities
under common control in amount of USD 215,891 thousand were
reassigned to the Group for a nominal amount of USD 1. These loans
are unsecured, bear an interest rate of 9-10% and are overdue as at
31 December 2017 and 2016. The fair value of these loans receivable
is considered to be nil.
Included in loans receivable as at 31 December 2017 is a loan
due from Filgate Credit Enterprises Limited amounting to USD 10,568
thousand (2016: USD 10,300 thousand), out of which the amount of
USD 8,390 thousand is overdue. Full amount of this loan receivable
was impaired as at 31 December 2017 and 2016.
6 VAT receivable
Management presents VAT receivable within non-current and
current assets based on the expected timing of VAT liabilities
being available against which VAT receivable can be utilised.
Management expects that long-term VAT receivable will be
recovered in full by 2020.
7 Trade and other receivables
Trade and other receivables as at 31 December are as
follows:
(in thousands of USD) 2017 2016
Trade receivables from related parties 13 1,384
Other receivables from related parties 8,160 8,963
Allowance for impairment (8,158) (10,338)
15 9
Trade receivables from third parties 1,238 1,086
Other receivables from third parties 1,182 137
Allowance for impairment (71) (70)
2,349 1,153
2,364 1,162
As at 31 December 2016, trade receivables from related parties
mainly comprised accounts receivable from related party, OKey
Ukraine, under the common control of the ultimate controlling
party. The Group ceased working with OKey Ukraine in August 2009.
As the result of financial difficulties faced by this tenant, an
allowance for impairment was recognised.
During the year ended 31 December 2017, accounts receivable from
OKey Ukraine in the amount of USD 1,371 thousand were written-off
against previously recognised allowance for impairment.
As at 31 December 2017, included in other receivables from
related parties are receivables from Dniprovska Prystan PrJSC
amounting to USD 7,796 thousand (2016: USD 8,598 thousand), which
are overdue. In 2012, the court ruled to initiate bankruptcy
proceedings against the mentioned related party and, as at 31
December 2017, the decision which would declare Dniprovska Prystan
PrJSC insolvent has not yet been made. Full amount of receivable
was impaired as at 31 December 2017 and 2016. During the year ended
31 December 2017, other receivables from Dniprovska Prystan PrJSC
amounting to USD 802 thousand were written-off against previously
recognised allowance for impairment.
8 Assets classified as held for sale
(a) Movements in assets classified as held for sale
Movements in assets classified as held for sale for the years
ended 31 December are as follows:
Prepayment for
Land held on investment Property under
leasehold Buildings property construction Other assets Total
(in thousands of
USD)
At 1 January 2016 - - - - 1,804 1,804
Currency
translation
adjustment - - - - (214) (214)
At 31 December
2016/
1 January 2017 - - - - 1,590 1,590
Currency
translation
adjustment - - - - (49) (49)
At 31 December
2017 - - - - 1,541 1,541
Included in other assets classified as held for sale as at 31
December 2017, is a land plot with a carrying amount of USD 1,541
thousand (2016: USD 1,590 thousand), land lease rights for which
were intended to be amended by one of the Group's subsidiaries,
Comfort Market Luks LLC, in respect of allocation of part of such
land plot to a third party in accordance with an investment
agreement concluded between the parties. Based on this investment
agreement, Comfort Market Luks LLC acts as an intermediary in
construction of a hypermarket with the total estimated area of
11,769 square meters and a parking lot with a total estimated area
of 20,650 square meters.
As at 31 December 2017, the construction of the hypermarket and
a parking lot is finalised and, except for the lease rights for the
abovementioned land plot to be allocated to a third party, the
owner of the hypermarket, the investment agreement is considered to
be fulfilled. Management expects that the lease rights for the land
plot under the hypermarket will be transferred to the third party
in 2018 subject to completion of formal legal procedures. As at 31
December 2017, advance payment received under this agreement (refer
to Note 15) amounts to USD 1,639 thousand (2016: USD 1,692
thousand) and will be settled upon transfer of the lease rights for
the land plot.
9 Cash and cash equivalents
Cash and cash equivalents as at 31 December are as follows:
(in thousands of USD) 2017 2016
Bank balances 374 2,935
Call deposits 2,235 2,018
2,609 4,953
As at 31 December 2017, in connection with loans and borrowings,
the Group pledged as security bank balances and call deposits with
a carrying value of USD 29 thousand and USD 1,153 thousand,
respectively (2016: USD 44 thousand and USD 1,159 thousand,
respectively) (refer to Note 23(a)).
As at 31 December 2017, cash and cash equivalents placed with
two bank institutions amounted to USD 2,482 thousand, or 95 % of
the total balance of cash and cash equivalents (2016: USD 3,710
thousand, or 75%). In accordance with Moody's rating, these banks
are rated Caa3 and Aa3 as at 31 December 2017, respectively (2016:
Caa2 and Aa3, respectively).
10 Share capital
Share capital as at 31 December is as follows:
2017 2017 2017 2016 2016 2016
Number Number
of shares US dollars EUR of shares US dollars EUR
Issued and fully
paid
At 1 January and
31 December 103,270,637 66,750 51,635 103,270,637 66,750 51,635
Authorised
At 1 January and
31 December 106,000,000 68,564 53,000 106,000,000 68,564 53,000
Par value, EUR - - 0.0005 - - 0.0005
All shares rank equally with regard to the Parent Company's
residual assets. The holders of ordinary shares are entitled to
receive dividends as declared from time to time, and are entitled
to one vote per share at meetings of the Parent Company.
During the years ended 31 December 2017 and 2016, the Parent
Company did not declare any dividends.
11 Earnings per share
The calculation of basic earnings per share for the years ended
31 December 2017 and 2016 was based on the profit for the years
ended 31 December 2017 and 2016 attributable to ordinary
shareholders of
USD 25,807 thousand and USD 23,493 thousand, respectively, and
weighted average number of ordinary shares outstanding as at 31
December 2017 and 2016 of 103,270,637.
The Group has no potential dilutive ordinary shares.
12 Loans and borrowings
This Note provides information about the contractual terms of
loans. For more information about the Group's exposure to interest
rate and foreign currency risk, refer to Note 22.
2017 2016
(in thousands of USD)
Non-current
Secured bank loans 33,502 27,745
Unsecured loans from related parties 25,263 9,100
58,765 36,845
Current
Secured bank loans (current portion of
long-term bank loans) 9,616 22,319
Unsecured loans from related parties (including
current portion of long-term loans from
related parties) 9,855 41,920
Unsecured loans from third parties 20,420 -
39,891 64,239
98,656 101,084
Terms and debt repayment schedule
As at 31 December 2017, the terms and debt repayment schedule of
loans and borrowings are as follows:
Currency Nominal interest rate Contractual year of maturity Carrying value
(in thousands of USD)
Secured bank loans
PJSC "Bank "St.Petersburg" USD 10.50% 2018-2020 16,062
EBRD USD 1M LIBOR + 7.50% 2018-2020 12,679
Raiffeisen Bank Aval UAH 18.00% 2018-2020 7,358
EBRD USD 3M LIBOR + 8.00% 2018-2020 7,019
43,118
Unsecured loans from related
parties
Retail Real Estate OU USD 12.00% 2018-2020 23,288
Retail Real Estate OU USD 10.50% 2018-2019 11,382
Retail Real Estate OU USD 10.00% 2018-2019 200
Loans from other related parties UAH/USD 0%-3.20% 2018 248
35,118
Unsecured loans from third
parties
Barleypark Limited USD 10.55% 2018 20,420
20,420
98,656
As at 31 December 2016, the terms and debt repayment schedule of
loans and borrowings are as follows:
Currency Nominal interest rate Contractual year of maturity Carrying value
(in thousands of USD)
Secured bank loans
PJSC "Bank "St.Petersburg" USD 10.50% 2017-2020 17,650
EBRD USD 1M LIBOR + 7.50% 2017-2020 15,485
EBRD USD 3M LIBOR + 8.00% 2017-2020 8,454
Raiffeisen Bank Aval UAH 18.00% 2017-2020 8,475
50,064
Unsecured loans from related
parties
Bytenem Co Limited USD 12.00% 2017 21,351
Barleypark Limited USD 10.55% 2017 18,795
Retail Real Estate OU USD 10.50% 2019 10,425
Loans from other related parties UAH/ USD 0.00%-10.00% 2017 449
51,020
101,084
As at 31 December LIBOR for USD is as follows:
2017 2016
LIBOR USD 3M 1.50% 1.00%
LIBOR USD 1M 1.38% 0.77%
For a description of assets pledged by the Group in connection
with loans and borrowings refer to Note 23(a).
PJSC "Bank "St.Petersburg"
During the year ended 31 December 2017, the Group signed
amendments to the loan agreements with PJSC "Bank "St.Petersburg"
stipulating a decrease in the amount of loan principal payable for
the period from June 2017 till February 2018 by USD 1,818
thousand.
During the year ended 31 December 2016, the Group signed
amendments to the loan agreements with PJSC "Bank "St.Petersburg"
stipulating a decrease in the amount of loan principal payable in
2016 by USD 2,447 thousand.
In April 2018 and March 2018 the Group signed amendments to the
loan agreements with PJSC "Bank "St.Petersburg" stipulating a
decrease in the amount of loan principal payable for the period
from March 2018 till April 2018.
As at 31 December 2017 and 2016, the Group has not fulfilled an
obligation to replace the existing pledge of investment property by
other investment properties acceptable to PJSC "Bank
"St.Petersburg", which was considered as the event of default under
the loan agreements concluded with the bank. In addition, as at 31
December 2017 and 2016, the Group has not replenished the deposit
pledged as a collateral for the amount of USD 1,200 thousand within
the time period required by the loan agreement. As a result, these
loans were presented as short-term as at 31 December 2016. In April
2017, management obtained the letter from the bank waving the
breaches of these covenants valid until July 2018. Accordingly,
management believes that despite the breaches of loan covenants the
bank will not demand early repayment of the loans. Consequently, as
at 31 December 2017, they were presented according to their
contractual maturities.
EBRD
On 28 March 2017, the Group signed agreement with the EBRD
pledging rights on future income under the agreement with the
anchor tenant (refer to Note 23(a)).
On 31 March 2017, the Group terminated agreements with the EBRD
on pledge of investment property of PrJSC Grandinvest and
Voyazh-Krym LLC and pledge of investment in PrJSC Grandinvest
(refer to Note 23(a)).
On 25 November 2016, the Group signed an additional agreement
with the EBRD reassigning the loan payable to the EBRD from PrJSC
Grandinvest to PrJSC Ukrpangroup for an amount of USD 3,737
thousand. The effective date of this agreement was 14 December
2016. The new agreement stipulated an increase in the annual
interest rate by 1.5% and changes to the repayment schedule of the
loan principal. Upon reassignment, the loan principal in amount of
USD 1,238 thousand was settled by the Group.
Barleypark Limited
Based on the terms of the loan agreement the loan is repayable
on demand but not later than the final repayment date. On 30 June
2017, the Group signed amendment to the loan agreement with
Barleypark stipulating prolongation of the maturity date till 31
July 2020. Subsequent to the reporting period end, the Group
obtained the letter from the lender waiving the right to demand
repayment of the loan during twelve months ending 31 December 2018.
During the year ended 31 December 2017, following the changes in
shareholding of Barleypark Limited, the counterparty ceased to be a
related party of the Group and the loan was re-classified to
unsecured loans from third parties.
Retail Real Estate OU
On 27 September 2016, the loan payable to Bytenem Co Limited was
assigned to Retail Real Estate OU. On 30 June 2017, the Group
signed amendment to the loan agreement with Retail Real Estate OU
stipulating prolongation of the maturity date untill 30 June
2020.
On 16 February 2017, the loan payable to Gingerfin Holdings was
assigned to Retail Real Estate OU and prolonged untill 1 January
2019.
As at 31 December 2017, the undrawn credit facilities from this
related party amount to USD 9,607 thousand (31 December 2016: USD
9,607 thousand).
Reconciliation of movements of liabilities to cash flows arising
from financing activities
Movements of liabilities for the years ended 31 December are as
follows:
Loans and borrowings Finance lease liabilities Total
(in thousands of USD)
Balance at 1 January 2017 101,084 6,857 107,941
Repayment of borrowings (6,777) - (6,777)
The effect of changes in foreign
exchange rates (272) (214) (486)
Additions to finance leases - 396 396
Interest expense (Note 20) 9,801 - 9,801
Other finance costs 46 659 705
Interest paid (5,226) (659) (5,885)
Balance at 31 December 2017 98,656 7,039 105,695
13 Finance lease liability
Finance lease liabilities as at 31 December are payable as
follows:
Present Present
Future value Future value
minimum of minimum minimum of minimum
lease lease lease lease
payments Interest payments payments Interest payments
2017 2017 2017 2016 2016 2016
(in thousands of USD)
Less than six months 405 404 1 367 366 1
Between six and twelve
months 405 404 1 367 366 1
Between one and two
years 811 807 4 839 836 3
Between two and five
years 2,837 2,820 17 2,836 2,816 20
More than five years 38,823 31,807 7,016 36,844 30,012 6,832
43,281 36,242 7,039 41,253 34,396 6,857
The imputed finance costs on the liability are based on the
Group's incremental borrowing rate ranging from 13.0% to 17.2% as
at 31 December 2017 and 2016.
During the year ended 31 December 2017, as a result of a change
in land lease rate indices and land lease payments calculation
methodology imposed by the state authorities, the Group recognised
a finance lease liability amounting to USD 396 thousand with no
impact on profit or loss and recognised a finance lease asset for
the amount of USD 396 thousand (refer to Note 4(a)) (2016:
recognised an increase in finance lease liability amounting to USD
1,799 thousand resulting in a loss in profit or loss for the year
ended 31 December 2016 in respect of land plot in Kryvyi Rig and
recognised an additional finance lease asset for the amount of USD
219 thousand in respect of land plots in Kyiv, Zaporizhzhya and
Odesa).
Future minimum lease payments as at 31 December 2017 and 2016,
are based on management's assessment that is based on actual lease
payments effective as at 31 December 2017 and 2016, respectively,
and expected contractual changes in the lease payments. The future
lease payments are subject to review and approval by the municipal
authorities and may differ from management's assessment.
The contractual maturity of land lease agreements ranges from
2018 to 2038. The Group intends to prolong these lease agreements
for the period of usage of the investment property being
constructed on the leased land. Consequently, the minimum lease
payments are calculated for a period of 50 years.
14 Trade and other payables
Trade and other payables as at 31 December are as follows:
(in thousands of USD) 2017 2016
Non-current liabilities
Payables for construction works 9,877 4,616
Trade and other payables to third parties 8 12
9,885 4,628
Current liabilities
Payables for construction works 21,124 11,623
Trade and other payables to related parties 1,137 1,371
Trade and other payables to third parties 2,997 2,765
25,258 15,759
35,143 20,387
As at 31 December 2017, included in payables for construction
works are USD denominated payables with the nominal value of USD
4,349 thousand with maturity on 30 June 2021 and bearing an
interest rate of 10.00% per annum.
Also, included in payables for construction works as at 31
December 2017 are EUR denominated payables under a commission
agreement concluded with a third party with the nominal value of
USD 2,039 thousand (2016: USD 2,838 thousand) with maturity on 15
September 2019. As at 31 December 2017 and 2016, these payables
relate to construction works performed at shopping centre
"Prospect", are presented in accordance with their contractual
maturity and measured at amortised cost under the effective
interest rate of 6.54% (2016: 6.38%) per annum.
Further, included in payables for construction works as at 31
December 2017 are accrued financial charges under construction
agreements with third parties amounting to USD 16,838 thousand.
During the year 2017, the constructors claimed the Group to
reimburse finance and foreign currency losses incurred by
constructors due to untimely fulfillment of obligations by the
Group companies under construction agreements. The Group agreed to
reimburse the charges claimed. Part of charges payable in the
amount of USD 12,153 thousand matures on 31 December 2018, part of
USD 1,893 thousand mature on 30 June 2021 and bear an interest rate
of 10.00%, and the remaining part of charges payable of USD 2,792
thousand with the nominal value of USD 3,220 thousand mature on 30
June 2019 and is measured at amortised cost under the effective
interest rate of 10.00% per annum.
As at 31 December 2016, included in payables for construction
works are UAH denominated payables with the nominal value of USD
3,797 thousand and USD 2,155 thousand with maturity on 20 December
2020 and 15 August 2019, respectively. These payables are measured
at amortised cost under the effective interest rates of 18.02% and
18.92% per annum, respectively.
The Group's exposure to currency and liquidity risk related to
trade and other payables is disclosed in Note 22.
15 Advances received
Advances from customers as at 31 December are as follows:
(in thousands of USD) 2017 2016
Non-current
Advances from third parties 125 325
125 325
Current
Advances received under investment agreement
(refer to Note 8) 1,639 1,692
Advances from third parties 3,259 2,707
Advances from related parties 24 26
4,922 4,425
5,047 4,750
In September 2009, the Group received a prepayment from an
anchor tenant for the period of ten years. As at 31 December 2017,
the non-current portion of the prepayment amounts to USD 125
thousand and the current portion amounts to USD 175 thousand (2016:
USD 325 thousand and USD 181 thousand, respectively). Remaining
advances from third parties are mainly represented by prepayments
from tenants for the period from one to two months.
16 Other liabilities
Other liabilities as at 31 December are as follows:
(in thousands of USD) 2017 2016
Non-current
Deferred consideration 20,000 -
Other long-term liabilities 91 98
20,091 98
Current
Deferred consideration 6,267 24,317
Other liabilities - 799
6,267 25,116
26,358 25,214
As at 31 December 2017, other long-term liabilities comprise
mainly the amount of principal and other current liabilities
comprise the amount of interest of the deferred consideration that
is payable in respect of the acquisition of Wayfield Limited and
its subsidiary Budkhol LLC, amounting to USD 20,000 thousand and
USD 6,267 thousand, respectively (2016: other current liabilities
mainly comprise the deferred consideration, amounting to USD 24,317
thousand, including accrued interest of USD 4,317 thousand).
On 30 June 2017, the Group signed an amendment to the share
exchange agreement with Vunderbuilt in order to postpone the
payment of deferred consideration to Bytenem Co Limited from 30
June 2017 to 30 June 2020. Deferred consideration is presented in
accordance with its contractual maturity as at 31 December 2017 and
2016 and bears 9.75% interest rate per annum.
As at 31 December 2016, other liabilities amounting to USD 799
thousand are represented by accrual of liability to Odesa City
Council in respect of an agreement on customer share participation
in the creation and development of engineering, transport and
social infrastructure of Odesa, including penalties for late
payment, in amount of USD 191 thousand. During the year ended 31
December 2017, Vektor Capital LLC has won the related case,
according to which the due date of repayment of all fees was
postponed until finalisation of construction of the shopping center
and respective accrual was reversed (refer to Note 23(d)(iv)).
17 Revenue
Revenue for the years ended 31 December is as follows:
2017 2016
(in thousands of USD)
Rental income from investment properties 27,318 22,872
Other sales revenue 231 218
27,549 23,090
During the year ended 31 December 2017, 16% of the Group's
rental income was earned from two tenants (12% and 4%,
respectively) (2016: 21%, 15% and 6%, respectively).
The Group rents out premises in the shopping centres to tenants
in accordance with lease agreements predominantly concluded for a
period of 11-42 months, save for the hypermarkets and large network
retails chains, which enter into long term lease agreements. In
accordance with lease agreements, rental rates are usually
established in USD and are settled in Ukrainian hryvnias and
Russian Roubles using the exchange rates established by the
National Bank of Ukraine and Central Bank of the Russian
Federation, as applicable. However, taking into account the current
market conditions, the Group provides temporary discounts to its
tenants by applying lower exchange rates than those established by
the National Bank of Ukraine or Central Bank of the Russian
Federation, in arriving to the rent payment for the particular
month.
Management believes that these measures will allow the Group to
maintain occupancy rates in the shopping centres at a relatively
high level during the current deteriorated period in Ukrainian
business environment. Management believes that these measures are
temporary until the Ukrainian business environment stabilises.
The Group's lease agreements with tenants usually include 2-45
months cancellation clause. The Group believes that execution of
the option to prolong the lease period upon expiration of
non-cancellable period on the terms different to those agreed
during the non-cancellable period, is not substantiated.
Accordingly, upon calculation of rental income for the period the
Group does not take into account rent payments, which are
prescribed by the agreements upon expiration of the period during
which the agreement cannot be cancelled.
Direct operating expenses arising from investment property that
generated rental income during the years ended 31 December are as
follows:
2017 2016
(in thousands of USD)
Advertising (Note 19) 746 708
Repair, maintenance and building services
(Note 18) 481 370
Land rent, land and other property taxes
(Note 19) 380 253
Communal public services (Note 18) 337 338
Security services (Note 19) 310 259
2,254 1,928
No direct operating expenses arising from investment property
that did not generate rental income during 2017 and 2016
occurred.
18 Goods, raw materials and services used
Goods, raw materials and services used for the years ended 31
December are as follows:
(in thousands of USD) 2017 2016
Repair, maintenance and building services
(Note 17) 481 370
Communal public services (Note 17) 337 338
Other costs 159 129
977 837
19 Operating expenses
Operating expenses for the years ended 31 December are as
follows:
(in thousands of USD) 2017 2016
Management, consulting and legal services 3,549 2,209
Advertising 746 708
Office expenses and communication services 450 277
Allowance for bad debts 425 5
Land rent, land and property taxes 380 253
Security services 310 259
Independent auditors' remuneration 97 51
Administrative expenses 60 66
Other assurance services charged by independent
auditors 32 44
Tax services charged by independent auditors 13 3
Other 1,084 670
7,146 4,545
20 Finance income and finance costs
Finance income and finance costs for the years ended 31 December
are as follows:
(in thousands of USD) 2017 2016
Gain on initial recognition of trade and
other payables at fair value 428 920
Interest income 240 257
Finance income from derecognition of finance
lease liability - 1,799
Other finance income - 119
Finance income 668 3,095
Financial charges under construction agreements
(Note 14) (16,764) -
Interest expense (Note 12) (9,801) (10,293)
Loss on derecognition of financial instruments (2,828) -
Interest expense on deferred consideration (1,956) (1,955)
Foreign exchange loss (455) (4,086)
Other finance costs (741) (1,372)
Finance costs (32,545) (17,706)
Net finance cost (31,877) (14,611)
21 Income tax expense
(a) Income tax expense
Income taxes for the years ended 31 December are as follows:
(in thousands of USD) 2017 2016
Current tax expense 1,252 918
Deferred tax expense 6,517 4,821
Total income tax expense 7,769 5,739
Corporate profit tax rate for Ukrainian entities is fixed at
18%.
While computing the deferred tax liability that arises on the
temporary differences between carrying amounts and tax values of
assets and liabilities of Voyazh-Krym LLC, registered in the
Autonomous Republic of Crimea, as at 31 December 2017 and 2016,
management of the Group reflected the tax consequences that are
applicable under the legislation of the Russian Federation that is
being applied for all companies operating in the Republic of
Crimea. In absence of clear regulations that will be applicable to
the Republic of Crimea, management expects that reversal of
temporary differences will be done under the Laws of the Russian
Federation. The applicable tax rate for the entities operating
under the laws of the Russian Federation is 20%.
The applicable tax rates are 12.5% for Cyprus companies and 20%
for Estonian companies, and nil tax for companies incorporated in
the Isle of Man and British Virgin Islands.
(b) Reconciliation of effective tax rate
The difference between the total expected income tax expense for
the years ended 31 December computed by applying the Ukrainian
statutory income tax rate to profit or loss before tax and the
reported tax expense is as follows:
2017 % 2016 %
(in thousands of USD)
Profit before tax 33,576 100% 29,232 100%
Income tax expense at statutory
rate in Ukraine 6,044 18% 5,262 18%
Effect of different tax rates on
taxable profit in other jurisdictions (2,374) (7%) (3,030) (10%)
Non-deductible expenses 7,797 23% 2,939 10%
Change in unrecognised deferred
tax assets (4,337) (12%) (1,734) (6%)
Write-off of deferred tax assets 145 0% - -
Foreign currency translation difference 494 1% 2,302 8%
Effective income tax expense 7,769 23% 5,739 20%
(c) Recognised deferred tax assets and liabilities
As at 31 December deferred tax assets and liabilities are
attributable to the following items:
Assets Liabilities Net
2017 2016 2017 2016 2017 2016
(in thousands
of USD)
Investment property 31 - (23,095) (16,316) (23,064) (16,316)
Property and
equipment - 1 (6) - (6) 1
Trade and other
receivables 43 440 (40) (22) 3 418
Assets classified
as held for
sale - - (277) (286) (277) (286)
Trade and other
payables 733 811 - - 733 811
Short-term borrowings 677 3,184 (667) (3,178) 10 6
Other long-term
payables 6 8 - (349) 6 (341)
Tax loss carry-forwards 17,504 12,177 - - 17,504 12,177
Deferred tax
assets (liabilities) 18,994 16,621 (24,085) (20,151) (5,091) (3,530)
Offset of deferred
tax assets and
liabilities (18,994) (16,621) 18,994 16,621 - -
Net deferred
tax assets (liabilities) - - (5,091) (3,530) (5,091) (3,530)
(d) Movements in recognised deferred tax assets and liabilities
Movements in recognised deferred tax assets and liabilities
during the year ended 31 December 2017 are as follows:
Balance Recognised Recognised Foreign Balance
as at in profit in OCI currency as at 31
1 January or loss translation December
2017 adjustment 2017
asset (liability) asset (liability)
(in thousands
of USD)
Investment property (16,316) (7,283) - 535 (23,064)
Property and
equipment 1 (7) - - (6)
Trade and other
receivables 418 (424) - 9 3
Assets classified
as held for
sale (286) - - 9 (277)
Trade and other
payables 811 (56) - (22) 733
Short-term borrowings 6 4 - - 10
Other long-term
payables (341) 355 - (8) 6
Tax loss carry-forwards 12,177 894 5,119 (686) 17,504
Deferred tax
assets (liabilities) (3,530) (6,517) 5,119 (163) (5,091)
Movements in recognised deferred tax assets and liabilities
during the year ended 31 December 2016 are as follows:
Balance Recognised Recognised Foreign Balance
as at in profit in OCI currency as at 31
1 January or loss translation December
2016 adjustment 2016
asset (liability) asset (liability)
(in thousands
of USD)
Investment property (10,633) (6,483) - 800 (16,316)
Property and
equipment 1 - - - 1
Trade and other
receivables 501 (26) - (57) 418
Assets classified
as held for
sale (324) - - 38 (286)
Trade and other
payables 37 827 - (53) 811
Short-term borrowings 8 (1) - (1) 6
Other long-term
payables (449) 55 - 53 (341)
Tax loss carry-forwards 8,053 807 4,576 (1,259) 12,177
Deferred tax
assets (liabilities) (2,806) (4,821) 4,576 (479) (3,530)
(e) Unrecognised deferred tax assets
Deferred tax assets as at 31 December 2017 have not been
recognised in respect of the following items:
Utilisation of
previously
Change in unrecognised Foreign currency
Balance as at 1 tax-loss carry temporary translation Balance as at
January 2017 forwards differences adjustment 31 December 2017
(in thousands of
USD)
Trade and other
receivables 550 - (591) 41 -
Tax loss
carry-forwards 28,711 562 (7,712) (199) 21,362
29,261 562 (8,303) (158) 21,362
Deferred tax assets as at 31 December 2016 have not been
recognised in respect of the following items:
Utilisation
of
Change in previously Increase in Foreign Balance as
Balance as at tax-loss unrecognised unrecognised currency at 31
1 January carry temporary temporary Effect of translation December
2016 forwards differences differences acquisition adjustment 2016
(in thousands
of USD)
Trade and other
receivables 107 - (101) - 550 (6) 550
Tax loss
carry-forwards 28,575 (814) - 75 4,119 (3,244) 28,711
28,682 (814) (101) 75 4,669 (3,250) 29,261
During 2017, a Group entity submitted amended CPT declaration
that led to an increase in tax-loss carry forwards by USD 562
thousand (2016: certain Group entities submitted amended CPT
declarations that led to a decrease in tax-loss carry forwards by
USD 814 thousand).
In accordance with existing Ukrainian legislation tax losses can
be carried forward and utilised indefinitely. Deferred tax assets
have not been recognised in respect of those items since it is not
probable that future taxable profits will be available against
which the Group can utilise the benefits therefrom.
During the year ended 31 December 2017, unrecognised temporary
differences of USD 3,404 thousand (2016: USD 1,708 thousand) relate
to items recognised in other comprehensive income.
22 Financial risk management
(a) Overview
The Group has exposure to the following risks from its use of
financial instruments:
-- credit risk
-- liquidity risk
-- market risk
This Note presents information about the Group's exposure to
each of the above risks, the Group's objectives, policies and
processes for measuring and managing risk. Further quantitative
disclosures are included throughout these consolidated financial
statements.
(b) Risk management framework
The management has overall responsibility for the establishment
and oversight of the risk management framework.
The Group's risk management policies are established to identify
and analyse the risks faced by the Group, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits.
Risk management policies and systems are reviewed regularly to
reflect changes in market conditions and the Group's
activities.
The Group, through its training and management standards and
procedures, aims to develop a disciplined and constructive control
environment in which all employees understand their roles and
obligations.
The Group's Audit Committee oversees how management monitors
compliance with the Group's risk management policies and procedures
and reviews the adequacy of the risk management framework in
relation to the risks faced by the Group.
(c) Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations, and arises principally from the
Group's loans and receivables.
(i) Trade and other receivables
The Group's exposure to credit risk is influenced mainly by the
individual characteristics of each customer. However, management
also considers the demographics of the Group's customer base,
including the default risk of the industry and country, in which
customers operate, as these factors may have an influence on credit
risk, particularly in the currently challenging economic
circumstances. There is no significant concentration of receivables
from a single customer. In 2017 and 2016, 100% of the Group's
revenue is attributable to sales transactions with customers in
Ukraine and the Republic of Crimea.
Management has no formal credit policy in place for customers
other than regular tenants and the exposure to credit risk is
approved and monitored on an ongoing basis individually for all
other significant customers.
The Group does not require collateral in respect of trade and
other receivables.
The Group establishes an allowance for impairment that
represents its estimate of incurred losses in respect of trade and
other receivables and loans receivable. The main components of this
allowance are a specific loss component that relates to
individually significant exposures, and a collective loss component
established for groups of similar assets in respect of losses that
have been incurred but not yet identified. The collective loss
allowance is determined based on historical data of payment
statistics for similar financial assets.
(ii) Guarantees
The Group considers that financial guarantee contracts entered
into by the Group to guarantee the indebtedness of related parties
to be insurance arrangements, and accounts for them as such. In
this respect, the Group treats the guarantee contract as a
contingent liability until such time as it becomes probable that
the Group will be required to make a payment under the
guarantee.
(iii) Exposure to credit risk
The carrying amount of financial assets represents the maximum
credit exposure.
In addition to the credit risk, the Group is exposed to the risk
of non-recoverability of VAT receivable, prepayments made and other
assets amounting in total to USD 2,454 thousand as at 31 December
2017 (2016: USD 3,183 thousand).
(iv) Impairment losses
The ageing of trade and other receivables as at 31 December
was:
2017 2017 2016 2016
Gross Impairment Gross Impairment
(in thousands of USD)
Not past due 1,478 - 1,082 -
Past due 0 - 30 days 505 - 13 -
Past due 31 - 60 days 294 - 5 -
Past due 61 - 90 days 30 - - -
Past due 91 - 360 days 18 - 46 -
More than one year 8,268 (8,229) 10,424 (10,408)
10,593 (8,229) 11,570 (10,408)
Allowance for impairment of financial assets is as follows:
2017 2016
(in thousands of USD)
Allowance for impairment of trade and other
receivables 8,229 10,408
Allowance for impairment of loans receivable 10,669 10,547
Allowance for impairment of available-for-sale
financial assets 20,727 20,727
39,625 41,682
Additionally, as at 31 December 2017 allowance for impairment of
prepayments made and other assets amounting to USD 417 thousand was
recognised (31 December 2016: nil).
The movement in the allowance for impairment in respect of
financial assets during the years ended 31 December was as
follows:
2017 2016
(in thousands of USD)
Balance at 1 January 41,682 81,509
Impairment loss recognised 268 5
Bad debt write-off (2,330) (39,761)
Foreign currency translation differences 5 (71)
Balance at 31 December 39,625 41,682
In 2016, the Group acquired corporate rights in Filgate Credit
Enterprises Limited. Due to a net liability position of Filgate
Credit Enterprises Limited as at the date of acquisition, this
investment is considered to be fully impaired. The purchase price
was set-off in full against the loans receivable from Weather
Empire Limited amounting to USD 39,761 thousand that were fully
impaired during the prior periods. Following the set-off, the loan
receivable along with the respective allowance for impairment were
derecognised (refer to Note 5).
(d) Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset. The Group's approach to managing liquidity is to
ensure, as far as possible, that it will always have sufficient
liquidity to meet its liabilities when due, under both normal and
stressed conditions, without incurring unacceptable losses or
risking damage to the Group's reputation.
The following are the contractual maturities of financial
liabilities, including interest payments as at 31 December
2017:
Contractual cash flows
----------------------------------------------------------
More
Carrying 2 months 2 - 12 1 - 2 2 - 5 than
amount Total or less months years years 5 years
(in thousands
of USD)
Secured bank
loans 43,118 52,289 1,695 12,306 13,645 24,643 -
Unsecured loans
from
related parties 35,118 41,603 9,710 2,234 2,414 27,245 -
Unsecured loans
from
third parties 20,420 20,420 20,420 - - - -
Finance lease
liability 7,039 43,281 135 675 811 2,837 38,823
Trade and other
payables 35,143 37,845 10,948 14,367 884 11,646 -
Other liabilities 26,358 31,230 6,267 1,950 2,041 20,972 -
167,196 226,668 49,175 31,532 19,795 87,343 38,823
The following are the contractual maturities of financial
liabilities, including interest payments as at 31 December
2016:
Contractual cash flows
---------------------------------------------------------
More
Carrying 2 months 2 - 12 1 - 2 2 - 5 than
amount Total or less months years years 5 years
(in thousands
of USD)
Secured bank
loans 50,064 60,727 1,518 25,077 8,803 25,329 -
Unsecured loans
from
related parties 51,020 54,550 18,980 24,575 955 10,040 -
Finance lease
liability 6,857 41,253 122 612 839 2,836 36,844
Trade and other
payables 20,387 24,072 15,754 821 778 6,719 -
Other liabilities 25,214 26,165 799 25,268 98 - -
153,542 206,767 37,173 76,353 11,473 44,924 36,844
(e) Market risk
Market risk is the risk that changes in market prices, such as
foreign exchange rates, interest rates and equity prices will
affect the Group's income or the value of its holdings of financial
instruments. The objective of market risk management is to manage
and control market risk exposures within acceptable parameters,
while optimising the return.
(i) urrency risk
Group entities located in Ukraine
The Group is exposed to currency risk on sales, purchases and
borrowings that are denominated in a currency other than the
Ukrainian hryvnias (UAH), primarily the U.S. Dollar (USD) and Euro
(EUR).
Interest on borrowings is denominated in the currency of the
borrowing. Generally, borrowings are denominated in USD which does
not always match the cash flows generated by the underlying
operation of the Group, primarily executed in UAH.
Exposure to currency risk
The Group's exposure to foreign currency risk as at 31 December
was as follows based on notional amounts:
2017 2016
------------------
USD EUR USD EUR
(in thousands of USD)
Cash and cash equivalents 25 - 25 109
Secured bank loans (35,760) - (41,589) -
Unsecured loans from related parties (200) - (185) -
Trade and other payables (4,349) (91) (220) (518)
Net short position (40,284) (91) (41,969) (409)
Sensitivity analysis
A 10 percent weakening of the Ukrainian hryvnia against the
following currencies as at 31 December would have decreased net
profit or loss and decreased equity by the amounts shown below.
This analysis assumes that all other variables, in particular
interest rates, remain constant.
2017 2016
------------------- ------------------
(in thousands of USD) Profit or Profit or
loss Equity loss Equity
USD (3,303) (3,303) (3,441) (3,441)
EUR (7) (7) (34) (34)
A 10 percent strengthening of the Ukrainian hryvnia against
these currencies at 31 December would have had the equal but
opposite effect on these currencies to the amounts shown above, on
the basis that all other variables remain constant.
Intra-group borrowings
The Group entities located in Ukraine are exposed to currency
risk on intra-group borrowings, eliminated in these consolidated
financial statements, that are denominated in a currency other than
the Ukrainian hryvnia (UAH), primarily the U.S. Dollar (USD). These
borrowings are treated as part of net investment in a foreign
operation with foreign exchange gains and losses recognised in
other comprehensive income and presented in the translation reserve
in equity.
The exposure to foreign currency risk on these borrowings is USD
290,144 thousand and USD 274,599 thousand as at 31 December 2017
and 2016, respectively. The effect of translation of these loans
payable by Ukrainian subsidiaries resulted in a foreign exchange
loss of USD 4,329 thousand, including tax effect, recognised
directly in other comprehensive income for the year ended 31
December 2017 (2016: USD 28,356 thousand).
A 10 percent weakening of the Ukrainian hryvnia against the USD
would have increased other comprehensive loss for the year ended 31
December 2017 and decreased equity as at 31 December 2017 by USD
23,792 thousand (2016: USD 22,517 thousand). This analysis assumes
that all other variables, in particular interest rates, remain
constant.
A 10 percent strengthening of the Ukrainian hryvnia against
these currencies would have had the equal but opposite effect to
the amounts mentioned above, on the basis that all other variables
remain constant.
Group entities located in the Republic of Crimea and the Russian
Federation
The Group entities, located in the Republic of Crimea and the
Russian Federation, are exposed to currency risk on purchases and
borrowings that are denominated in a currency other than the
Russian Rouble (RUB), primarily the Ukrainian hryvnia (UAH) and
U.S. Dollar (USD).
Exposure to currency risk
The exposure to foreign currency risk as at 31 December was as
follows based on notional amounts:
2017 2016
------------------
(in thousands of USD) USD UAH USD UAH
Cash and cash equivalents - - 850 -
Trade and other payables - - - (1,320)
Net short position - - 850 (1,320)
Sensitivity analysis
A 10 percent strengthening of the Russian Rouble against the
following currencies as at 31 December would have increased net
profit or loss and increased equity by the amounts shown below.
This analysis assumes that all other variables, in particular
interest rates, remain constant.
2017 2016
--------------------------- ---------------------
Profit or Profit or
loss Equity loss Equity
(in thousands of USD)
UAH - - 106 106
USD - - (68) (68)
A 10 percent weakening of the Russian Rouble against these
currencies at 31 December would have had the equal but opposite
effect on these currencies to the amounts shown above, on the basis
that all other variables remain constant.
(ii) Interest rate risk
Changes in interest rates impact primarily loans and borrowings
by changing either their fair value (fixed rate debt) or their
future cash flows (variable rate debt). Management does not have a
formal policy of determining how much of the Group's exposure
should be to fixed or variable rates. However, at the time of
obtaining new financing management uses its judgment to decide
whether a fixed or variable rate would be more favorable to the
Group over the expected period until maturity.
Refer to Notes 5, 12, 13, 14 and 16 for information about
maturity dates and effective interest rates of fixed rate and
variable rate financial instruments. Re-pricing for fixed rate
financial instruments occurs at maturity of fixed rate financial
instruments.
Profile
The interest rate profile of the Group's interest-bearing
financial instruments as at 31 December was as follows:
2017 2016
(in thousands of USD)
Fixed rate instruments
Loans and borrowings 78,918 77,099
Other liabilities 26,267 24,317
Finance lease liability 7,039 6,857
Payables for construction works 6,242 -
118,466 108,273
Variable rate instruments
Loans and borrowings 19,698 23,939
19,698 23,939
Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial assets
and liabilities at fair value through profit or loss or as
available-for-sale, and the Group does not designate derivatives
(interest rate swaps) as hedging instruments under a fair value
hedge accounting model. Therefore a change in interest rates at the
reporting date would not affect profit or loss or equity.
Cash flow sensitivity analysis for variable rate instruments
An increase of 100 basis points in interest rates at the
reporting date would have decreased equity as at 31 December and
would have decreased net profit or loss for the years ended 31
December by the amounts shown below. This analysis assumes that all
other variables, in particular foreign currency rates, remain
constant.
2017 2016
----------------- -----------------
Profit or Profit or
loss Equity loss Equity
(in thousands of USD)
Loans and borrowings (162) (162) (196) (196)
(162) (162) (196) (196)
A decrease of 100 basis points in interest rates at 31 December
would have had the equal but opposite effect to the amounts shown
above.
(iii) Fair values
Estimated fair values of the financial assets and liabilities
have been determined using available market information and
appropriate valuation methodologies. However, considerable judgment
is required in interpreting market data to produce the estimated
fair values. Accordingly, the estimates are not necessarily
indicative of the amounts that could be realised in a current
market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the
estimated fair values.
The estimated fair values of financial assets and liabilities
are determined using discounted cash flow and other appropriate
valuation methodologies, at year-end, and are not indicative of the
fair value of those instruments at the date these consolidated
financial statements are prepared or distributed. These estimates
do not reflect any premium or discount that could result from
offering for sale at one time the Group's entire holdings of a
particular financial instrument. Fair value estimates are based on
judgments regarding future expected cash flows, current economic
conditions, risk characteristics of various financial instruments
and other factors.
Fair value estimates are based on existing financial instruments
without attempting to estimate the value of anticipated future
business and the value of assets and liabilities not considered
financial instruments. In addition, tax ramifications related to
the realisation of the unrealised gains and losses can have an
effect on fair value estimates and have not been considered.
The following table shows the carrying amounts and fair values
of financial assets and financial liabilities, including their
levels in the fair value hierarchy. It does not include fair value
information for financial assets and financial liabilities not
measured at fair value if the carrying amount is a reasonable
approximation of fair value:
2017 2016
Fair value Fair value
Carrying amount Level 2 Carrying amount Level 2
(in thousands of USD)
Financial liabilities not measured at fair value
Non -current
Secured bank loans 33,502 34,602 27,745 26,921
Unsecured loans from related parties 25,263 26,145 9,100 9,521
Deferred consideration 20,000 21,692 - -
78,765 82,439 36,845 36,442
Current
Secured bank loans (current portion of long-term
bank loans) 9,616 9,923 22,319 22,881
Unsecured loans from related parties
(including current portion of long-term loans
from related parties) 9,855 10,127 41,920 42,495
Unsecured loans from third parties 20,420 20,420 - -
Deferred consideration 6,267 6,797 24,317 24,635
46,158 47,267 88,556 90,011
124,923 129,706 125,401 126,453
Management believes that for all other financial assets and
liabilities, not included in the table above, the carrying value
approximates the fair value as at 31 December 2017 and 2016. Such
fair value was estimated by discounting the expected future cash
flows under the market interest rate for similar financial
instruments that prevails as at the reporting date. The estimated
fair value is categorised within Level 2 of the fair value
hierarchy.
(f) Capital management
Management defines capital as total equity attributable to
equity holders of the parent. The Group has no formal policy for
capital management but management seeks to maintain a sufficient
capital base for meeting the Group's operational and strategic
needs, and to maintain confidence of market participants. The Group
strives to achieve with efficient cash management, and constant
monitoring of the Group's investment projects. With these measures
the Group aims for steady profits growth. There were no changes in
the Group's approach to capital management during the year.
23 Commitments and contingencies
(a) Pledged assets
As at 31 December, in connection with loans and borrowings, the
Group pledged the following assets:
2017 2016
(in thousands of USD)
Investment property (Note 4(a)) 117,790 102,337
Call deposits (Note 9) 1,153 1,159
Bank balances (Note 9) 29 44
118,972 103,540
As at 31 December 2017, the Group has also pledged the
following:
-- Future rights on income of Prisma Alfa LLC and Comfort Market
Luks LLC under all lease agreements and rights on future income of
PrJSC Ukrpangroup under agreement with anchor tenant;
-- Investments in the following subsidiaries: PrJSC Ukrpangroup,
Comfort Market Luks LLC and PrJSC Livoberezhzhiainvest;
-- Property rights under the Investment Agreement between PrJSC
Grandinvest, PrJSC Livoberezhzhiainvest and Voyazh-Krym LLC.
As at 31 December 2016, the Group has also pledged the
following:
-- Future rights on income of Prisma Alfa LLC and Comfort Market
Luks LLC under all lease agreements;
-- Investments in the following subsidiaries: PrJSC Grandinvest,
PrJSC Ukrpangroup, Comfort Market Luks LLC and PrJSC
Livoberezhzhiainvest;
-- Property rights under the Investment Agreement between PrJSC
Grandinvest, PrJSC Livoberezhzhiainvest and Voyazh-Krym LLC.
(b) Construction commitments
The Group entered into contracts with third parties to construct
two shopping centres in Kyiv and a shopping centre in Odesa for the
amount of USD 19,209 thousand as at 31 December 2017 (2016: USD
20,584 thousand).
(c) Operating lease commitments
The Group as lessor
The Group entered into lease agreements on its investment
property portfolio that consists of five shopping centres. These
non-cancellable lease agreements usually have remaining terms from
two to forty five months. All agreements include a clause to enable
upward revision of the rent rate on an annual basis according to
prevailing market conditions.
The future minimum lease payments under non-cancellable leases
as at 31 December are as follows:
2017 2016
(in thousands of USD)
Less than one year 4,723 4,087
Between one and five years 3,852 2,813
More than five years 2,975 -
11,550 6,900
(d) Litigations
In the ordinary course of business, the Group is subject to
legal actions and complaints.
(i) Legal case in respect of Assofit Holdings Limited
Starting from November 2010 the Group has been involved in an
arbitration dispute with Stockman Interhold S.A. (Stockman), which
was the majority shareholder of Assofit Holdings Limited (Assofit),
regarding invalidation of the Call Option Agreement dated 25
February 2010. In accordance with this Call Option Agreement,
Arricano was granted the option to acquire the shareholding of
Stockman being equal to 50.03 per cent in the share capital of
Assofit during the period starting from 15 November 2010 up to 15
March 2011. In November 2010, the Company sought to exercise the
option granted by the Call Option Agreement, however the buy-out
was suspended by legal and arbitration proceedings that were
initiated by Stockman in relation to the validity of the
termination of the agreement relating to the call option under the
Call Option Agreement.
In the seventh award delivered on 5 May 2016, the tribunal of
the London Court of International Arbitration has found that
Stockman is in breach of the Call Option Agreement and has taken
"steps deliberately to dissipate and misappropriate Assofit's
assets". As a result, the tribunal has ordered Stockman to
transfer, or procure the transfer of, the Option Shares to Arricano
within 30 days of the award. Upon registration of the transfer,
Arricano shall pay to Stockman the Option Price minus damages,
which when netted out brings the balance to nil. In the event that
Stockman does not transfer, or procure the transfer of the Option
Shares, Arricano may elect instead to claim damages in lieu of the
share transfer.
In its latest award, being the eighth award, made on 17 August
2016, the tribunal of the London Court of International Arbitration
has awarded the costs of approximately USD 0.9 million to be paid
by Stockman to Arricano. No receivable was recognised in these
consolidated financial statements, as recoverability of the related
asset was not certain.
In July 2017, the hearing regarding challenges of the fifth, the
sixth and the seventh award by Stockman has taken place. By
judgement dated 30 November 2017, the High Court of England and
Wales dismissed the claims filed by Stockman challenging the
fourth, fifth and seventh awards, and subsequently, on 5 January
2018, dismissed Stockman's application to appeal such
judgement.
As at the date that these consolidated financial statements are
authorised for issuance, a number of related legal cases are under
the consideration of the District Court of Nicosia.
In September 2014, Assofit Holdings Limited transferred the
shares of Prisma Beta LLC to Financial and Investment Solutions BV,
a company registered in the Netherlands, despite the fact that an
Interim Receiver was appointed in Assofit at that period of time
with the responsibility of collecting and safeguarding Assofit's
assets. Further in September 2014, Joint-Stock Bank Pivdeniy PJSC,
Ukraine, which had an outstanding mortgage loan due from Prisma
Beta LLC of USD 32,000 thousand, exercised its right to recover the
abovementioned loan by means of reposession of ownership rights to
the Sky Mall shopping centre which was pledged to secure this loan
in September 2014. As at the date that these consolidated financial
statements are authorised for issuance, shares of Prisma Beta LLC
and ownership rights for the Sky Mall shopping centre remain to be
alienated.
As at 31 December 2017 and 2016, the Group holds 49.97% of
nominal voting rights in Assofit without retaining significant
influence. In prior years' consolidated financial statements of the
Group until 31 December 2013, investment in Assofit was recognised
in the statement of financial position as available for-sale
financial asset at its carrying amount of USD 20,727 thousand. Due
to loss of the legal control over the major operating asset being
the Sky Mall shopping centre in September 2014, management believes
that investment in Assofit is fully impaired as at 31 December 2017
and 2016.
(ii) Legal case in respect of Mezokred Holding LLC
On 17 April 2014, a claim was filed against Mezokred Holding LLC
by a third party individual seeking to nullify the resolution
issued by the Kyiv City Council, according to which the latter has
approved the allocation to Mezokred Holding LLC of a land plot in
Obolon District of Kyiv for the construction of a hypermarket and
entitled Mezokred Holding LLC to lease this land plot for a period
of 25 years. During 2016 and 2017, the court of first, appeal and
cassation instances ruled in favour of Mezokred Holding LLC.
(iii) Legal case in respect of Voyazh-Krym LLC
Starting from October 2013, the Group has been involved in the
legal proceedings regarding demolishing of the part of the shopping
centre "South Gallery" located in Simferopol with an area of 0.73
ha. On 22 January 2016, Arbitration court of the Russian Federation
ruled against Voyazh-Krym LLC and the latter filed an appeal. On 27
December 2016, the Court of Central District has cancelled the
previous decision of 20 September 2016 and decided to reconsider
the case under the rules of the arbitration court.
As at the date that these consolidated financial statements are
authorised for issuance, the final hearing has not taken place
yet.
Management believes that the Group will be successful in
defending its rights further in court, if this is required.
Otherwise, Voyazh-Krym LLC may be required to perform
reconstruction of the part of the shopping center stated at USD
26,700 thousand as at 31 December 2017.
(iv) Legal case in respect of Vector Capital LLC
On 3 October 2016, the claim was filed against Vektor Capital
LLC by Odesa City Council to recover indebtedness in respect of the
agreement on customer share participation in the creation and
development of engineering, transport and social infrastructure of
Odesa. During year ended 31 December 2017, Vektor Capital LLC has
won the related case, according to which the due date of repayment
of all fees was postponed until finalisation of construction of the
shopping center. In February 2018 the related case was closed.
Management is unaware of any other significant actual, pending
or threatened claims against the Group.
(e) Taxation contingencies
(i) Ukraine
The Group performs most of its operations in Ukraine and
therefore within the jurisdiction of the Ukrainian tax authorities.
The Ukrainian tax system can be characterised by numerous taxes and
frequently changing legislation which may be applied retroactively,
open to wide interpretation and in some cases are conflicting.
Instances of inconsistent opinions between local, regional, and
national tax authorities and between the Ministry of Finance and
other state authorities are not unusual. Tax declarations are
subject to review and investigation by a number of authorities that
are enacted by law to impose severe fines, penalties and interest
charges. A tax year remains open for review by the tax authorities
during the three subsequent calendar years, however under certain
circumstances a tax year may remain open longer. These facts create
tax risks substantially more significant than typically found in
countries with more developed systems.
Management believes that it has adequately provided for tax
liabilities based on its interpretation of tax legislation and
official pronouncements. However, the interpretations of the
relevant authorities could differ and the effect on these
consolidated financial statements, if the authorities were
successful in enforcing their interpretations, could be
significant. No provisions for potential tax assessments have been
made in these consolidated financial statements.
(ii) Republic of Crimea and the Russian Federation
As a result of the events described in Note 1(b), Ukrainian
authorities are not currently able to enforce Ukrainian laws on the
territory of the Republic of Crimea. Starting from April 2014, this
territory is subject to the transitional provisions of tax rules
established by the Russian government to ensure gradual
introduction of federal laws into the territory. Although these
transitional provisions were thought to put certain relief on the
entities registered in the Republic of Crimea, interpretations of
these provisions by the tax authorities may be different from the
tax payers' view.
Effective from 1 January 2015, the territory of the Republic of
Crimea is subject to general legislation of the Russian Federation.
The taxation system in the Russian Federation continues to evolve
and is characterised by frequent changes in legislation, official
pronouncements and court decisions, which are sometimes
contradictory and subject to varying interpretation by different
tax authorities.
Taxes are subject to review and investigation by a number of
authorities, which have the authority to impose severe fines,
penalties and interest charges. A tax year generally remains open
for review by the tax authorities during the three subsequent
calendar years; however, under certain circumstances a tax year may
remain open longer. Recent events within the Russian Federation
suggest that the tax authorities are taking a more assertive and
substance-based position in their interpretation and enforcement of
tax legislation.
Transfer pricing legislation enacted in the Russian Federation
starting from 1 January 2012 provides for major modifications
making local transfer pricing rules closer to OECD guidelines, but
creating additional uncertainty in practical application of tax
legislation in certain circumstances.
These transfer pricing rules provide for an obligation for the
taxpayers to prepare transfer pricing documentation with respect to
controlled transactions and prescribe the basis and mechanisms for
accruing additional taxes and interest in case prices in the
controlled transactions differ from the market level.
The transfer pricing rules apply to cross-border transactions
between related parties, as well as to certain cross-border
transactions between independent parties, as determined under the
Russian Tax Code (no threshold is set for the purposes of prices
control in such transactions). In addition, the rules apply to
in-country transactions between related parties if the accumulated
annual volume of the transactions between the same parties exceeds
a particular threshold (RUB 1 billion in 2014 and thereon).
The compliance of prices with the arm's length level could be as
well subject to scrutiny on the basis of unjustified tax benefit
concept.
In addition, a number of new laws introducing changes to the
Russian tax legislation have been recently adopted. In particular,
starting from 1 January 2015 changes aimed at regulating tax
consequences of transactions with foreign companies and their
activities were introduced, such as concept of beneficial ownership
of income, etc. These changes may potentially impact the Group's
tax position and create additional tax risks going forward. This
legislation is still evolving and the impact of legislative changes
should be considered based on the actual circumstances.
These circumstances may create tax risks in the Russian
Federation that are substantially more significant than in other
countries. Management believes that it has provided adequately for
tax liabilities based on its interpretations of applicable Russian
tax legislation, official pronouncements and court decisions.
However, the interpretations of the tax authorities and courts,
especially due to reform of the supreme courts that are resolving
tax disputes, could differ and the effect on these consolidated
financial statements, if the authorities were successful in
enforcing their interpretations, could be significant.
(iii) Republic of Cyprus
During the prior years, the Group incurred certain foreign legal
expenses, where the VAT accounted for on these expenses was fully
claimed. Management believes that the Group properly claimed the
VAT accounted for on these expenses, on the basis of the plans to
further collect reimbursement of the said expenses, being purely of
legal nature, from respective parties in full. Since as at the date
of issue of these consolidated financial statements the management
did not proceed with the implementation of their plans, the
transactions will not be complete in the view of VAT authorities,
and the Group may be liable to pay VAT of approximately USD 1,947
thousand plus related interest and penalties.-
No provision for the VAT liability or related penalties is made
in these consolidated financial statements as management believes
that it is not probable that such VAT liability will materialise,
as the Group will proceed with the implementation of the plan on
the reimbursement of expenses.
24 Related party transactions
(a) Control relationships
The Group's largest shareholders are Retail Real Estate OU, OU
Ekspert Kapital, Dragon - Ukrainian Properties and Development plc,
Deltamax Group OU, Rauno Teder and Jüri Põld. The Group's ultimate
controlling party is Estonian individual Hillar Teder. Hillar Teder
indirectly controls 55.45% of the voting shares of the Parent
Company. As at 31 December 2017, apart from this, the adult son of
Hillar Teder, Mr. Rauno Teder, controls 7.48% of the voting shares
of the Parent Company.
Subsequent to the reporting period end, on 29 January 2018,
Rauno Teder has informed that he became the beneficial owner of
DeltaMax Group OÜ, which holds 8,816,000 ordinary shares in the
Parent Company and thus increased his interest to 16,343,321
ordinary shares in the Parent Company (representing 15.82% of the
Parent Company's issued share capital).
(b) Transactions with management and close family members
Key management remuneration
Key management compensation included in the statement of profit
or loss and other comprehensive income for the year ended 31
December 2017 is represented by salary and bonuses of USD 813
thousand (2016: USD 711 thousand).
(c) Transactions and balances with entities under common control
Outstanding balances with entities under common control as at 31
December are as follows:
2017 2016
(in thousands of USD)
Short-term loans receivable 10,669 10,547
Trade receivables 13 1,384
Other receivables 8,160 8,963
Provision for impairment of trade and other
receivables and loans receivable from related
parties (18,827) (20,885)
15 9
Long-term loans and borrowings 25,263 9,100
Short-term loans and borrowings 9,855 41,920
Trade and other payables 1,137 1,371
Advances received 24 26
Other liabilities 26,267 24,317
62,546 76,734
None of the balances are secured. The terms and conditions of
significant transactions and balances with entities under common
control are described in Notes 5, 7, 12 and 16.
Expenses incurred and income earned from transactions with
entities under common control for the years ended 31 December are
as follows:
2017 2016
(in thousands of USD)
Interest expense (5,654) (6,320)
Other finance costs (18) (40)
Operating expenses - (89)
Other finance income - 18
Prices for related party transactions are determined on an
ongoing basis.
(d) Guarantees issued by related parties
The Group's related parties issued guarantees securing loans
payable by Ukrainian subsidiaries of Arricano Real Estate PLC to
the EBRD (loans payable by Comfort Market Luks LLC, Ukrpangroup
PrJSC) and PJSC "Bank "St.Petersburg" (loans payable by
Livoberezhzhiainvest PrJSC). The guarantees cover the total amount
of outstanding liabilities in relation to EBRD loans as at 31
December 2017 of USD 19,698 thousand (2016: USD 23,939 thousand)
and in relation to PJSC "Bank "St.Petersburg" as at 31 December
2017 of USD 16,062 thousand (2016: USD 17,650 thousand).
(e) Acquisitions from entities under common control
There were no acquisitions from entities under common control
during the year.
On 29 April 2016, the Group acquired 100% shareholding in Green
City LLC from the entity under common control for the consideration
of USD 1,560.
On 14 December 2016, the Parent Company acquired a
non-controlling interest (49% of corporate rights) of Filgate
Credit Enterprises Limited from the company under common control
incorporated in Cyprus, in exchange for loan receivable from
Weather Empire Limited (refer to Note 5).
25 Subsequent events
Subsequent to the reporting period end, on 29 January 2018,
Rauno Teder has informed that he became the beneficial owner of
DeltaMax Group OÜ, which holds 8,816,000 ordinary shares in the
Parent Company and thus increased his interest to 16,343,321
ordinary shares in the Parent Company (representing 15.82% of the
Parent Company's issued share capital).
In April 2018 and March 2018 the Group signed amendments to the
loan agreements with PJSC "Bank "St.Petersburg" stipulating a
decrease in the amount of loan principal payable for the period
from March 2018 till April 2018.
INDEPENT AUDITOR'S REPORT
TO THE MEMBERS OF
ARRICANO REAL ESTATE PLC
Report on the audit of the Consolidated financial statements
Opinion
We have audited the accompanying consolidated financial
statements of Arricano Real Estate PLC (the "Company"), and its
subsidiaries (together with the Company, referred to as the
"Group"), which comprise the consolidated statement of financial
position as at 31 December 2017, and the consolidated statements of
profit or loss and other comprehensive income, changes in equity
and cash flows for the year then ended, and notes to the
consolidated financial statements, including a summary of
significant accounting policies.
In our opinion, the accompanying consolidated financial
statements give a true and fair view of the consolidated financial
position of the Group as at 31 December 2017, and of its
consolidated financial performance and its consolidated cash flows
for the year then ended in accordance with International Financial
Reporting Standards as adopted by the European Union ("IFRS-EU")
and the requirements of the Cyprus Companies Law, Cap. 113, as
amended from time to time (the "Companies Law, Cap. 113").
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing ("ISAs"). Our responsibilities under those
standards are further described in the "Auditors' responsibilities
for the audit of the consolidated financial statements" section of
our report. We are independent of the Group in accordance with the
Code of Ethics for Professional Accountants of the International
Ethics Standards Board for Accountants ("IESBA Code"), and the
ethical requirements in Cyprus that are relevant to our audit of
the consolidated financial statements, and we have fulfilled our
other ethical responsibilities in accordance with these
requirements and the IESBA Code. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Material uncertainty related to going concern
We draw attention to Note 2 (e) to the consolidated financial
statements, which indicates that as at 31 December 2017 the Group's
current liabilities exceeded its current assets by USD 69,293
thousand. In addition, the Group has not complied with several loan
covenants under the existing loan agreements (refer to note 12. As
stated in Note 2 (e), these events or conditions indicate that a
material uncertainty exists that may cast significant doubt on the
Group's ability to continue as a going concern. Our opinion is not
modified in respect of this matter.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements of the current period. These
matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters.
Valuation of investment property (USD 221,265 thousand)
See Note 4 to the consolidated financial statements
The key audit matter How the matter was addressed
in our audit
---------------------------------------
The Group has a significant Our audit procedures included
holding of investment property, among others the following:
which as at 31 December 2017 1. Assessing, using our own
represented 96% of the total experts, the appropriateness
assets. We identified the valuation of the valuation methods used
of investment properties as by the external valuer and
a key audit matter due to the assumptions underlying the
significance of the balance determination of the fair value
to the consolidated financial of property, including monthly
statements as a whole, and rental rates, occupancy rates
due to the significant element and discount rates. We challenged
of judgement and estimation various key inputs such as
associated with determination rental and occupancy rates,
of the fair value. discount rates etc by reference
The Group measures its investment to available market information,
properties at fair value at actual rental agreements and
each reporting date, except other primary documentation
for properties under development, Forecasted income used by the
which are carried at cost. valuer for calculation of the
As disclosed in note 4 to the fair value of investment property
consolidated financial statements, is reconciled to actual figures
the fair value is based on of December 2017 and compared
the valuation performed by to budgeted figures for January
an independent external valuer 2018. Deviations were investigated
(the "Valuer"), engaged by and traced to the primary documents.
the Group, using the estimated 2. Evaluating the competence,
rental value of property (income objectivity and independence
approach). A market yield is of the valuer used by the management.
applied to the estimated rental 3. Evaluating the design and
value to arrive at the gross implementation of the Group's
property valuation. When actual controls over the investment
rents differ materially from property valuation.
the estimated rental value, 4. Preparing a roll-forward
adjustments are made to reflect schedule on movements in investment
actual rents. Land parcels property and recalculation
are valued based on market of FV gains for the year based
prices for similar properties on the report prepared by the
(market approach). valuer.
5. Performing a sensitivity
analysis over the key inputs
used for calculation of the
fair value of investment property
and comparing calculation to
the amounts disclosed in the
consolidated financial statements.
---------------------------------------
Litigations and contingent liabilities
See note 23 (d) to the consolidated financial statements
The key audit matter How the matter was addressed
in our audit
-------------------------------------
In the normal course of the Our audit procedures included
business, potential exposures among others the following:
may arise from various legal 1. Reviewing the minutes of
procedures against the Group the Board and Audit Committee
entities. Due to the range meetings.
of the potential outcomes and 2. Inquiring the in-house lawyers
the considerable uncertainty to determine any potential
around the resolution of various outcome of the cases and steps
claims, the determination of that will be undertaken in
the amount, if any, to be recorded future with regards to the
in the consolidated financial ongoing litigations.
statements as a provision is 3. Reviewing and assessing
inherently subjective. As at responses of the external legal
31 December 2017, the Group advisors of the Group. Consulting
was involved in a number of with KPMG legal team, when
significant legal cases which considered necessary.
are still ongoing and the financial 4. Assessing following the
impact of which cannot be currently completion of the above procedures,
determined. the appropriateness of accounting
for litigations in the consolidated
financial statements of the
Group.
5. Re-calculation and assessment
and potential financial impact
on the Group from relevant
litigations
-------------------------------------
Other information
The Board of Directors is responsible for the other information.
The other information comprises the information included in the
management report for the year ended 31 December 2017, but does not
include the consolidated financial statements and our auditors'
report thereon.
Our opinion on the consolidated financial statements does not
cover the other information and we do not express any form of
assurance conclusion thereon, except as required by the Companies
Law, Cap. 113.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial statements
or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. Our report in
this regard is presented in the "Report on other legal
requirements" section.
With regards to the management report, our report is presented
in the "Report on other legal requirements" section.
Responsibilities of the Board of Directors for the financial
statements
The Board of Directors is responsible for the preparation of
consolidated financial statements that give a true and fair view in
accordance with IFRS-EU and the requirements of the Companies Law,
Cap. 113, and for such internal control as the Board of Directors
determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the consolidated financial statements, the Board of
Directors is responsible for assessing the Group's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting, unless there is an intention to either liquidate the
Group or to cease operations, or there is no realistic alternative
but to do so.
The Board of Directors is responsible for overseeing the Group's
financial reporting process.
Auditors' responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue
an auditors' report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise
professional judgment and maintain professional skepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the Board of Directors.
-- Conclude on the appropriateness of the Board of Directors'
use of the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on
the Group's ability to continue as a going concern. If we conclude
that a material uncertainty exists, we are required to draw
attention in our auditors' report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditors' report. However, future
events or conditions may cause the Group to cease to continue as a
going concern.
-- Evaluate the overall presentation, structure and content of
the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and
events in a manner that achieves true and fair view.
-- Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or the business activities of
the within the Group to express an opinion on the consolidated
financial statements. We are responsible for the direction,
supervision and performance of the Group audit. We remain solely
responsible for our audit opinion.
We communicate with the Board of Directors regarding, among
other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide the Board of Directors with a statement that we
have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with the Board of Directors, we
determine those matters that were of most significance in the audit
of the consolidated financial statements of the current period and
are therefore the key audit matters.
Report on other legal requirements
Pursuant to the additional requirements of law L.53(I)2017, and
based on the work undertaken in the course of our audit, we report
the following:
-- In our opinion, the consolidated management report, the
preparation of which is the responsibility of the Board of
Directors, has been prepared in accordance with the requirements of
the Companies Law, Cap. 113, and the information given is
consistent with the consolidated financial statements.
-- In the light of the knowledge and understanding of the
business and the Group's environment obtained in the course of the
audit, we have not identified material misstatements in the
management report.
Other matter(.)
This report, including the opinion, has been prepared for and
only for the Company's members as a body in accordance with Section
69 of Law L.53( )/2017, and for no other purpose. We do not, in
giving this opinion, accept or assume responsibility for any other
purpose or to any other person to whose knowledge this report may
come to.
The engagement partner on the audit resulting in this
independent auditors' report is John C. Nicolaou.
John C. Nicolaou, CPA
Certified Public Accountant and Registered
Auditor
for and on behalf of
KPMG Limited
Certified Public Accountants and Registered
Auditors
11, June 16th 1943 Street
3022 Limassol
Cyprus
Limassol, 25 April 2018
This information is provided by RNS
The company news service from the London Stock Exchange
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